Rising interest rates and global equities push oil prices lower
- MSCI Asia Pacific index rises 0.2 percent; European Stoxx 600 climbs 0.7 percent
- U.S. 10-year Treasury yield falls to 4.98 percent
- Brent crude drops to $104; gold rises to $4,334
Bloomberg – Global equities and U.S. Treasury bond prices rose as oil prices declined, bolstering hopes that inflation could be curbed following the Federal Reserve’s interest rate hike and its indication of further monetary tightening in the coming period.
Futures on the S&P 500 index rose 0.8 percent, while Nasdaq 100 futures climbed 1 percent. The European Stoxx 600 index rose 0.7 percent, and the MSCI Asia Pacific index increased 0.2 percent.
Brent crude is set to record its first losses in two consecutive sessions for the first time this month, with the global benchmark crude falling more than 1.5 percent to approach $104 per barrel, amid signs of easing supply disruptions in the Middle East.
U.S. Treasury prices rose across various maturities, with the 10-year yield dropping 5 basis points to 4.98 percent.
While the dollar remained steady, gold prices rose 1.6 percent to $4,334, and Bitcoin increased 0.5 percent to $76,457. The Japanese yen also strengthened by 0.4 percent to 155.69 yen per dollar.
Following the Fed’s decision, markets are assessing what comes next. The rate hike and the commitment to curb inflation have helped ease some of the pressures caused by rising prices. Additionally, the decline in oil prices may further bolster hopes that the worst inflation fears will not materialize.
The so-called “dot plot” of the Federal Reserve, which officials use to signal their expectations for the base interest rate, suggests another borrowing cost increase this year. Meanwhile, financial markets are pricing in three rate hikes in total over the next 12 months.
Bloomberg quoted Panmure Liberum strategist Joachim Clement, who said, “Current market expectations for additional rate hikes in 2027 may be excessive.” He added, “We expect the next move in bond yields is likely to be downward, which should in turn support equity markets.”
Federal Reserve Chair Jerome Powell’s insistence on tackling inflation reassured markets after the central bank’s first rate hike since 2023.
Charu Chanana, chief investment strategist at Saxo Markets in Singapore, said, “Powell has bolstered the Fed’s credibility in fighting inflation, which can be seen in the strength of the dollar. It is also important that the long end of the Treasury yield curve has not moved upward in an uncontrolled manner.”
She noted that markets still recognize some growth risks due to monetary tightening. However, the relatively muted reaction at the long end of the yield curve, the resilience of tech stocks, and the calmer tone in Asian markets suggest that investors are relieved that a more hawkish Federal Reserve has not become another shock to long-term yields.
Investors are now assessing how quickly the Federal Reserve may tighten policy further as inflationary pressures persist. Forecasts point to another increase this year, placing upcoming economic data under the microscope ahead of the October meeting.
Gerald Gan, chief investment officer at Red Capital Partners, said, “Markets seem to draw some reassurance from the fact that the Federal Reserve is tightening policy in an economy that still retains a relative degree of flexibility, rather than in one that already shows significant signs of deterioration.” The Fed’s move marks the beginning of a broader tightening cycle, with policymakers and traders alike expecting at least one more rate hike this year. Attention now shifts to the timing and pace of any additional steps.
