Nasdaq, S&P, Dow rise while yields are up to kick off Jackson Hole Week

Major market averages opened trading higher on Monday following another down week for equities.

The Nasdaq Composite (COMP.IND) was +0.4%, the S&P 500 (SP500) was +0.2%, and the Dow (DJI) was +0.1%.

Additionally, the S&P 500 and Nasdaq are coming off a three-week losing streak.

It’s “undoubtedly been a challenging few weeks for global markets after the optimism of the early summer,” Deutsche Bank’s Henry Allen wrote. “In aggregate, global bonds have now lost ground for 5 weeks running, and US Treasuries are back in negative YTD territory. At the same time, global equities are now down for 3 weeks running, with last week marking the worst performance for equities since SVB’s collapse in March.”

Higher rates continued to be a concern. The 10-year Treasury yield (US10Y) rose 6 basis points to 4.31%, moving closer to a 52-week high of 4.34%. The 2-year yield (US2Y) rose 4 basis points to 4.97%.

See how Treasury yields are trading across the curve.

As recently as early June, “futures were still expecting a rate cut from the Fed by the end of 2023,” Allen noted. “But they now don’t see a full 25bp cut priced in until the May 2024 meeting. That’s a big shift in just over a couple of months, and alongside the reassessment of the long-term rates outlook, it’s meant that longer-dated government bond yields have hit their highest level in several years.”

With the economic calendar empty, traders will already be looking ahead to the Jackson Hole Symposium, where Fed chief Jay Powell will speak on Friday.

Rates will likely be the talk of Wyoming, with special attention to the ethereal economic concept of r* (the natural rate of interest) and whether officials see it moving back to pre-pandemic levels.

“At Jackson Hole Fed Chair Powell may want to send a message of policy continuity rather than a warning on future policy tightening as at the last few conferences,” Standard Chartered’s Steve Englander wrote. “However, with inflation and activity likely slowing he may see the sharp move at the long end of curve, unrelated as it is to policy expectations, as opening up more downside risk to asset markets than is needed now.”

“He will avoid any indication that he is targeting long rates but may send a sufficiently ambivalent message on long yields, along with the usual anti-inflation mantra, to weaken the USD and notch down yields. The question is whether such comments will be enough in light of concerns elsewhere to reverse recent trends.”

China was also in focus this morning after the PBOC cut the one-year prime rate to 3.45%, but got a lukewarm receptions.

“China cut its one year loan prime rate, but less than markets had anticipated,” UBS’ Paul Donovan said. “For those bewildered by the plethora of policy tweaks in China, it is best to look at the bigger picture. China is easing policy, but the focus may be on supporting rather than stimulating consumption — lowering costs for existing borrowers more than encouraging stronger credit growth.”