[New York Stock Market] Sharp Drop in Treasury Yields Due to BOE Intervention Boosts Stocks... Nasdaq Up 2.05%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] On the 28th (local time), the major indices of the U.S. New York stock market, which had fallen to this year's lowest point, rebounded for the first time in a while. Amid growing sentiment that the previous decline was excessive, the Bank of England (BOE), the central bank of the United Kingdom, took out the card of large-scale government bond purchases, calming financial market instability to some extent. Soaring bond yields fell, and the dollar also dropped slightly.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 29,683.74, up 548.75 points (1.88%) from the previous session. The S&P 500, centered on large-cap stocks, rose 71.75 points (1.97%) to 3,719.04, and the Nasdaq, focused on tech stocks, closed at 11,051.64, up 222.13 points (2.05%). As a result, the Dow and S&P 500 ended a six-trading-day losing streak. Local media reported that this was the longest decline since the early days of the COVID-19 pandemic in February 2020.

By sector, energy stocks showed strength as international oil prices surged sharply for the first time in a while due to the northward approach of Hurricane Ian. ExxonMobil closed up 3.64% from the previous session. Chevron rose 3.38%, and Occidental Petroleum increased by 4.92%.

The so-called 'MATANA,' composed of representative tech stocks, rallied except for Apple. Microsoft (+1.97%), Tesla (+1.72%), Amazon (+3.15%), Nvidia (+2.60%), and Alphabet (+2.62%) closed higher. On the other hand, Apple fell 1.27% on news that it canceled plans to increase iPhone 14 production. CNBC reported that Apple was the only stock showing a decline in the blue-chip Dow index that day.

Additionally, as financial market instability eased somewhat, Home Depot (+5.02%), sensitive to the economy, recorded the highest gain in the Dow index. Construction stocks such as Caterpillar (+3.28%) also rallied, expected to benefit from hurricane recovery efforts. Biogen, a pharmaceutical company, surged nearly 40% on news that its Alzheimer's drug showed effectiveness in Phase 3 clinical trials.

Investors continued to watch financial market instability originating from the UK, bond yields, and exchange rate movements on this day. Remarks from Fed officials, including Jerome Powell, Raphael Bostic, President of the Atlanta Federal Reserve Bank, Michelle Bowman, Thomas Barkin, President of the Richmond Fed, and Charles Evans, President of the Chicago Fed, were also scheduled one after another, attracting investors' attention.

On the 23rd, after the UK government announced a large-scale tax cut plan, the pound sterling plunged to an all-time low against the dollar, and bond yields surged, increasing financial market volatility. In response, the BOE announced on this day that it would purchase long-term government bonds until October 4 to stabilize the financial market. This was due to concerns that pension funds might become insolvent as bond market volatility sharply increased. In addition, the quantitative tightening (QT) scheduled to begin next week was postponed until October 31.

Immediately afterward, government bond yields in major countries, including the UK and the US, showed a downward trend. The UK 10-year government bond yield fell from 4.5% before the BOE's bond purchase announcement to around 4.08% afterward. On the same day, the 30-year bond yield, which had surpassed 5% to reach a 20-year high, dropped by 1 percentage point shortly after. The German 10-year yield decreased from around 2.35% to 2.11%, and the French 10-year yield fell from about 2.95% to 2.72%.

In the New York bond market, a simultaneous decline in U.S. Treasury yields was confirmed. The U.S. 10-year yield briefly exceeded 4% immediately after the BOE's bond purchase announcement but stabilized around 3.7%. The Wall Street Journal (WSJ) analyzed that this daily decline was the largest since March 2020. The 2-year yield, sensitive to monetary policy, also fell from an intraday high of 4.316% to the current 4.09%. A decline in bond yields indicates a rise in bond prices.

In the foreign exchange market, the strong dollar also eased somewhat. The Dollar Index, which measures the value of the dollar against six major currencies, fell from around 114 the previous day to about 112. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's 'fear index,' dropped more than 7% from the previous session, moving around the 30 level.

However, since this is only a short-term measure and the UK government's credibility issues have not been resolved, concerns are pouring in that global financial market volatility originating from the UK will continue for the time being.

Piper Sandler drew a line, stating that the BOE's intervention on this day would not change the Fed's monetary policy direction. Concerns about a recession due to high-intensity tightening remain. Dominic Wilson of Goldman Sachs pointed out in a report, "The tightening pressure on the U.S. financial environment will not end until the economy clearly enters a recession or there is sustained progress on inflation."

Economic media CNBC reported that while some indicators suggest the New York stock market is oversold, concerns remain that the impact of earnings slowdowns and interest rate hikes has not yet been reflected. The 14-day average Relative Strength Index (RSI) of the S&P 500 is below 30, entering the oversold territory.

Billionaire investor Stanley Druckenmiller attended an event hosted by CNBC in New York on this day and said that the Fed's actions would have a negative impact on the U.S. economy, stating, "A hard landing is possible around the end of 2023," and "If we do not experience a recession in 2023, I would be surprised." He argued that the unprecedented quantitative easing and low-interest-rate environment over the past decade created an asset bubble, saying, "All elements of the bull market have stopped and reversed," and "We are in deep trouble."

Oil prices surged on this day. At the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil for November delivery closed at $82.15 per barrel, up 4.7% ($3.65) from the previous day.

This was interpreted as reflecting production disruptions in the Gulf of Mexico area as Hurricane Ian was expected to make landfall in Florida in the afternoon. Relatedly, U.S. President Joe Biden warned oil companies at an event on this day, saying, "A temporary hurricane affecting oil prices is no excuse. We will watch oil prices carefully."

International gold prices rebounded as the dollar and bond yields' sharp rise eased. At the New York Commodity Exchange, December delivery gold closed at $1,670 per ounce, up 2.1% ($33.80).