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While you were sleeping: US dollar gains with 10-year Treasury yield

Tuesday 24th April 2018

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Wall Street eased, while the US dollar rose, as investors eyed a key level for the 10-year US Treasury note as well as a slew of corporate earnings including from Alphabet.

The US dollar touched the highest level in more than three months as the 10-year Treasury yield rose as high as 2.99 percent, the highest level in four years. It recently traded at 2.98 percent.

"The 10-year US Treasury yield rose to a within a whisker of 3 percent," Capital Economics economist chief markets John Higgins said in a note on Monday. "Although the yield has dropped back from this level on several occasions in the past five years, we continue to forecast that it will end 2018 even higher than it is now, at 3.5 percent and that it will only begin to fall sharply in 2019 once the outlook for monetary policy changes.”

Billionaire investor Jeffrey Gundlach told CNBC that closing above 3 percent “would lead to an acceleration to higher yields.”

"The other big level – I think it's even bigger,” Gundlach noted, “is 3.22 [percent] on the 30-year, which we did close at; that was the high close this year, and then we backed off pretty nicely. But now we're back up around 3.16, 3.17, we're getting close again."

Wall Street declined. In 2.34pm trading in New York, the Dow Jones Industrial Average declined 0.5 percent, while the Nasdaq Composite Index also fell 0.5 percent. In 2.18pm trading, the Standard & Poor’s 500 Index retreated 0.2 percent.

“The entire market is watching that rates move and if we manage to break and extend higher the [US] dollar will follow,” wrote Brad Bechtel, global head of FX at Jefferies, in a note Monday, Bloomberg reported. “If we fail and resume lower again the dollar will likely follow that too.”

The Dow slid as declines in shares of Goldman Sachs and those of 3M, recently down 2 percent and 1.2 percent respectively, outweighed gains in shares of Merck and those of Nike, recently up 2.2 percent and 1.2 percent respectively.

Aluminum prices sank as the US considered easing sanctions against United Company Rusal and also extended a deadline to wind down dealings with Russia’s top aluminum producer. Shares of Rusal soared. 

“RUSAL has felt the impact of US sanctions because of its entanglement with Oleg Deripaska, but the US government is not targeting the hardworking people who depend on RUSAL and its subsidiaries,” Treasury Secretary Steven Mnuchin said in a statement. 

“RUSAL has approached us to petition for delisting,” according to Mnuchin. “Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider RUSAL’s petition.”  

In Europe, the Stoxx 600 Index ended the day with a 0.4 percent increase from the previous close. Germany’s DAX Index gained 0.3 percent, the UK’s FTSE 100 Index rose 0.4 percent, while France’s CAC40 Index added 0.5 percent.

(BusinessDesk)

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