New York Stock Market Crashes Amid Powell's Inflation Fear Stirring (Summary)

Government bond yields surpass 1.5%, stock market plunges
Gold prices fall... Dollar strengthens

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Baek Jong-min] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), stated that "there is inflationary pressure," which bombarded the U.S. financial market. The U.S. Treasury yields, which had maintained a shaky stability, surged again, and major indices on the New York Stock Exchange all plunged. Gold prices and the value of the dollar also fluctuated wildly.

On the 3rd (local time), the Dow Jones Industrial Average closed at 39,924.14, down 1.11% from the previous day; the S&P 500 index fell 1.34% to 3,768.47; and the Nasdaq index plunged 2.11% to 12,723.47. With this drop, the Nasdaq gave up all its gains for the year and turned negative.

Major indices on the New York Stock Exchange initially rose as inflation expectations eased following disappointing employment data released before the market opened, but they quickly collapsed after Chairman Powell's remarks.

Immediately after Powell's comments, the U.S. 10-year Treasury yield soared to the 1.54% range. Powell emphasized, "There is inflationary pressure, but it is temporary. We will be patient." This statement was perceived as the Fed intending to tolerate recent inflation.

Regarding the Treasury yields that surged to the 1.6% range last week, Powell said, "It was noteworthy," and emphasized, "Asset purchases will continue at the current level until we make significant progress toward our goals."

He also said that day, "We are ready to use all tools to achieve our goals," but failed to calm market anxiety. There was no mention of the 'Operation Twist' that the market expects the Fed to introduce to curb the rise in Treasury yields.

On the same day, Goldman Sachs forecasted that the 10-year Treasury yield would reach 1.9% by the end of this year. The 30-year fixed mortgage rate in the U.S. also exceeded 3% that day.

Powell's remarks also triggered a plunge in gold prices and a rise in the dollar's value. Due to the rise in Treasury yields, international gold prices fell 1.3%, dropping to $1,695 per ounce. This is the first time gold prices have fallen to the $1,600 range since April last year.

Meanwhile, the dollar index, which shows the dollar's value against major currencies, rose 0.77% to 91.645. The dollar had shown weakness this year reflecting concerns about the U.S. government's large-scale stimulus policies, but it quickly recovered to the level of last November, linked to the sharp rise in Treasury yields.

Among individual stocks, technology stocks showed notable weakness. Tesla fell 4.86%, and Chinese electric vehicle maker Nio's stock also dropped 5.4%. Apple showed a decline of around 1.5%.