Key facts
- Federal Reserve officials indicated that further interest rate hikes are necessary to combat inflation.
- Longer-dated U.S. Treasury yields reached multi-year highs following the commentary.
- Stocks reversed earlier gains, trading mixed as yields climbed.
- Japanese authorities intervened in currency markets to support the yen.
- Traders are now pricing in a higher probability of a Fed rate hike in September.
Stocks experienced a mixed trading session, reversing earlier gains as Federal Reserve officials reiterated the need for further interest rate hikes to control inflation. This hawkish commentary pushed longer-dated Treasury yields to multi-year highs. The yield on the benchmark U.S. 10-year note climbed 6.35 basis points to 4.727%, its highest level since January 2025. The 30-year bond yield also rose, reaching 5.2584%, a level not seen since mid-2007.
Several Fed policymakers, including Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed President Neel Kashkari, publicly advocated for higher rates, citing a solid labor market and upside risks to price pressures. Traders are now pricing in a 69% probability of a rate increase at the Fed's September meeting.
In currency markets, the yen strengthened against the dollar following intervention by Japanese authorities, who sold dollars and bought yen to support the currency. The U.S. Treasury has also reportedly communicated with banks about potential intervention in the yen market.
Earlier in the session, stocks had rallied on the back of strong earnings reports from tech giants Amazon and Microsoft, which eased investor concerns about the impact of AI spending. Amazon reported its strongest cloud growth in over four years, while Microsoft projected robust cash generation through fiscal 2027. However, the positive sentiment was overshadowed by the hawkish Fed remarks and rising yields.
The Dow Jones Industrial Average was down 0.06%, the S&P 500 fell 0.02%, and the Nasdaq Composite rose 0.19%. The pan-European STOXX 600 and FTSEurofirst 300 indices also dipped slightly. South Korea's KOSPI, however, saw a significant rebound, leaping 17.91% after substantial losses earlier in the week.