Macro Roundup (Jan 19)

SHANGHAI, Jan 19 (SMM) — This is a roundup of global macroeconomic news last night and what is expected today.

The dollar rose to a one-week high on Tuesday following a jump in benchmark U.S. Treasury yields, while the yen steadied after initially sliding as the Bank of Japan said it would stick to its ultra-loose monetary policy.

The U.S. Federal Reserve meets next week and likely will signal that it will raise rates in March for the first time since the start of the coronavirus pandemic.

The fed funds futures have priced in four rate hikes in 2022.

As investors prepared for the possibility of the Fed being more hawkish than expected, Treasury yields jumped, with two-year yields - which track short-term rate expectations - crossing 1% for the first time since February 2020.

The U.S. 10-year yield also hit a two-year peak of 1.856% overnight.

In line with Treasury yields, the dollar strengthened against a basket of currencies, hitting a one-week high of 95.638. It was last up 0.4% at 95.608.

U.S. stock futures were steady in overnight trading on Tuesday following a sell-off on Wall Street triggered by surging bond yields.

Dow futures rose just 10 points. S&P 500 futures gained 0.05% and Nasdaq 100 futures were flat.

On Tuesday, the Dow Jones Industrial Average lost more than 540 points, dragged down by a 7% drop in Goldman Sachs' stock. The Wall Street bank missed analysts' expectations for earnings as operating expenses surged 23%.

The S&P 500 declined 1.8%. The Nasdaq Composite, full of interest rate sensitive technology stocks, was the relative underperformer, dipping 2.6%. The Nasdaq closed at its lowest level in three months as investors feared how quickly the Federal Reserve will hike interest rates.

Bond yields continued their year-to-date climb on Tuesday with the 10-year Treasury topping 1.87%, its highest level in 2 years. The 10-year yield started the year around 1.5%. Meanwhile, the 2-year rate — which reflect short-term interest rate expectations — topped 1% for the first time in two years.

As for oil prices, DUBAI, United Arab Emirates — The United Arab Emirates has vowed to retaliate against Houthi militants for a deadly attack on its capital Abu Dhabi on Monday that killed three people, as fresh tensions in the region helped push oil prices to their highest level in seven years.

International benchmark Brent crude futures advanced 1.19% to $87.51 per barrel, while U.S. West Texas Intermediate futures settled 2.43% higher at $85.43 per barrel. Both oil contracts notched their highest level since October 2014 earlier in the day after a subdued trading day on Monday as U.S. markets were closed for a public holiday.

Gold prices fell on Tuesday, dragged by a stronger dollar and higher U.S. Treasury yields, as investors turned their attention to next week’s Federal Reserve policy meeting for more signals on its rate hike timeline.

Spot gold slipped 0.3% to $1,814.34 per ounce by 12:00 p.m. ET. U.S. gold futures fell 0.2% to $1,813.50.

The pan-European Stoxx 600 ended the day down 1%, with tech stocks dropping 2.2% to lead the losses as most sectors and major bourses slipped into negative territory. Oil and gas shares were the standout gainers, rising 1.1% on the back of a surge in oil prices amid rising tensions in the Middle East.

Global markets have been focused of late on assessing the potential speed and trajectory at which the Fed will move to hike interest rates and tighten its ultra-loose pandemic-era monetary policy.