US Treasury Yields Key Driver For Markets

New York (Oct 5)  Treasury yields have become the key driver for global markets, says Brown Brothers Harriman. Yields have been rising lately, which has underpinned the U.S. dollar but hurt equities. “After spiking to 3.23% yesterday, the U.S. 10-year yield fell back but remains elevated just above 3.20%,” BBH says. “So too is the two-year yield, now trading at 2.88%.  Bloomberg WIRP suggests a 76% chance of a December hike, which is at the highs.  More importantly, markets are just starting to price in a potential third hike next year on the back of strong U.S. data and hawkish Fed comments.” The reaction to Federal Reserve Chair Jerome Powell’s comments this week shows that “it’s clear that Fed officials still have the power to move markets” between meetings of the Federal Open Market Committee, BBH adds. Further, “recent Fed comments support our view that the markets are seriously underestimating the Fed’s intentions with regards to higher rates.”

Gold could be in for another “rock and rocky” quarter as its fortunes remain tied to the U.S. dollar, says Lukman Otunuga, research analyst at FXTM. The metal was nearly directionless early Friday as investors remained cautious ahead of the highly anticipated U.S. report on nonfarm payrolls. The data always has a big impact on U.S. interest-rate expectations, thus the dollar and gold. “With gold’s fortune tied to the dollar’s performance, this could be another rough and rocky trading quarter for the precious metal,” Otunuga says. “Taking a look at the technical perspective, prices are likely to trade within a modest range until the NFP figures are released….A solid breakdown below the $1,190 support level could inspire a move towards $1,181 and $1,173, respectively.”

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