US weekly: Hawkish Fed, volatile treasury yields drags markets lower in the week

US weekly: Hawkish Fed, volatile treasury yields drags markets lower in the week

Last updated: 19 Jun, 2021 | 06:34 am

US weekly: Hawkish Fed, volatile treasury yields drags markets lower in the week

After continuing its record run on Monday, the S&P 500 index took a breather on Tuesday, as investors keenly awaited the Fed’s Monetary Policy Update later in the day. 

US stocks dropped on Wednesday and Thursday, after the Fed raised its inflation expectations, and hinted at potentially earlier-than-expected rate hikes. While Fed’s policy has been supportive so far, faster-than-expected recovery has led to concerns around inflation. 

The index fell for the fourth consecutive day on Friday, as treasury yields rose following comments from St. Louis Fed President James Bullard. Bullard said that the Fed Reserve has started discussing scaling back the pace of pandemic bond-buying.

Investors were seen rotating out of cyclical stocks, after the Fed’s hawkish stance. Consequently, the Dow Jones, which includes many cyclical companies, posted a much higher decline for the week as compared to tech-heavy Nasdaq. 

Weekly US market stats with IND

Let’s see the major developments during the week:

US Treasury yields see volatility: US Treasury yields were volatile following the Fed’s hawkish comments. The 10-year US Treasury yields rose sharply after the Fed meeting on Wednesday, and then fell on Thursday and Friday. (Bond prices and yields move in opposite directions.) Bond investors were concerned after Fed Chair Jerome Powell said that officials had begun a discussion about tapering bond purchases. Short- and intermediate-term Treasury yields experienced more sustained increases.

Fed Meet outlook: The Fed Meet’s outcome was quite significant in the week. The US central bank hinted at an end to its pandemic-driven easy Monetary Policy so far. Fed officials have also projected an accelerated timetable for rate hikes, and began discussions on how to end the bond-buying program which was put in place to combat the effects of pandemic.  

Inflation outlook raised: The Fed also raised its headline inflation expectations to 3.4% from 2021, much higher than 2.4% forecasted earlier. Powell said that inflation could be higher than predicted due to faster-than-anticipated economic recovery.  

USD posts best week in 15 months:  US Dollar saw its best week since April 2020 as yields on short-term Treasuries rose, due to expectations of rate rises in the future. The dollar index, which measures the US Dollar against a basket of currencies, rose 0.4% on Friday, taking its weekly gain to 1.9% for the week. 

Check out our other analysis on important market developments!

Indian weekly market wrap: The markets snapped a 4-week gaining streak as factors such as inflation data, volatile crude oil prices, and global cues from Fed Reserve Meet weighed. The week also saw 4 new IPOs, after a long break in the primary markets. View analysis

Adani share update: What’s behind the fall?: Adani Group stocks including Adani Power, Adani Gas, Adani Ports and Adani Green ended the week up to 24% lower, after media reports said that NSDL has frozen accounts of certain FPI investors who have a stake in the Adani Group companies. Here’s a timeline of events which serve as a recap of all that transpired in Adani Group stocks in the week. View analysis