[New York Stock Market] US Treasury Yields Surge, Stocks Fall... Focus on Powell's Speech on the 23rd

Rising Interest Rates Amid Sovereign Bond Sell-Off
Fed Officials Gathered at Jackson Hole Hint at "September Cut"
Last Week's Unemployment Claims Slightly Increased
Focus on Powell's Jackson Hole Speech on the 23rd

The three major indices of the U.S. New York stock market all closed lower on the 22nd (local time). U.S. Treasury prices, which had sharply risen on expectations of a rate cut in September, fell due to a rebound sell-off, causing Treasury yields to rise and putting pressure on the stock market. The market is focusing on the speech by Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), scheduled for the next day at the Jackson Hole meeting.

On that day in the New York stock market, the blue-chip-focused Dow Jones Industrial Average closed at 40,712.78, down 177.71 points (0.43%) from the previous trading day. The large-cap-focused S&P 500 index fell 50.21 points (0.89%) to 5,570.64, and the tech-heavy Nasdaq index dropped 299.63 points (1.67%) to 17,619.35.

The New York stock market started the day with gains and maintained a mostly bullish trend throughout the morning but turned lower due to a sharp rise in Treasury yields. The U.S. 2-year Treasury yield, sensitive to monetary policy, rose 9 basis points (bp) to 4.01%, surpassing 4%, while the 10-year U.S. Treasury yield, a global bond yield benchmark, traded around 3.86%, up 9 bp from the previous day. Treasury prices had recently risen on expectations of an imminent Fed rate cut, but investors began selling Treasuries, judging that prices had reached a short-term peak, causing bond yields to rise.

George Ball, Chairman of Sanders Morris, analyzed, "The market was almost flat like a pancake throughout the morning," adding, "Investors have some fear about what will happen around the U.S. Labor Day (September 2) and thereafter."

Fed officials attending the annual economic policy symposium, the Jackson Hole meeting, which opened in Wyoming that day, made successive remarks suggesting a rate cut in September.

Patrick Harker, President of the Philadelphia Federal Reserve Bank, said in an interview with CNBC, "We need to start the process of cutting rates in September," adding, "The Fed should systematically ease monetary policy and send sufficient signals in advance." Susan Collins, President of the Boston Federal Reserve Bank, also said in interviews with Bloomberg News and Fox Business, "We are focused on continuing to lower inflation while maintaining a healthy labor market," and "In this context, it seems appropriate to begin policy easing soon." These remarks support a rate cut in September. However, since both Harker and Collins mentioned systematic and gradual easing, the possibility of a 'baby cut' of 0.25 percentage points is weighted more than a 'big cut' of 0.5 percentage points next month.

Following the release of the July Federal Open Market Committee (FOMC) minutes the previous day, the remarks by these two Fed officials have strengthened investors' confidence in a September rate cut. According to the minutes, the majority of Fed officials viewed a rate cut in September as appropriate, and many had already advocated for a cut in July. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day fully priced in a more than 0.25 percentage point rate cut by the Fed in September. The probability of a 0.25 percentage point cut is 75.5%, and that of a 0.5 percentage point cut is 24.5%.

The U.S. labor market also appears to be slowing gradually rather than cooling rapidly. According to the U.S. Department of Labor on the morning of that day, initial jobless claims for the week of August 11-17 were 232,000, and continuing claims for at least two weeks were 1,863,000 for the week of August 4-10. Both slightly exceeded the revised figures for the previous week (228,000 and 1,859,000, respectively).

Chris Larkin, Head of Trading at Morgan Stanley E*TRADE, assessed, "Investors were able to move past the moderate jobless claims today and focus on next week's inflation data and Nvidia's earnings."

The market's attention is focused on Powell's speech at Jackson Hole the next day. Powell is expected to signal a rate cut in September and provide clues about the pace of the cut. Considering the Fed's data-dependent style of policy-making, the likelihood of Powell indicating a big cut is low. Jeffrey Schmid, President of the Kansas City Federal Reserve Bank and considered a hawk (favoring monetary tightening) within the Fed, also said that he is not yet ready to support a rate cut and emphasized the importance of incoming data over the next few weeks. Key indicators before the September FOMC include the August employment report scheduled for September 5 and the August Consumer Price Index (CPI) on September 11.

Chris Senick, Chief Investment Strategist at Wolfe Research, said, "Powell will maintain a dovish tone and signal the start of a rate cut cycle at the September meeting," but added, "Unlike the pricing in the rate futures market, he is unlikely to signal a cut exceeding 25 basis points."

By individual stocks, software company Snowflake plunged 14.7% despite better-than-expected quarterly earnings and an upward revision of its annual earnings outlook. U.S. apparel retailer Urban Outfitters fell 9.57% as its quarterly same-store sales missed market expectations.

International oil prices rose more than 1% on expectations of a U.S. rate cut next month. West Texas Intermediate (WTI) crude oil closed at $73.01 per barrel, up $1.08 (1.5%) from the previous trading day, and Brent crude, the global oil price benchmark, rose $1.17 (1.54%) to $77.22 per barrel.