Yields rise as Fed looks to further rate hike

(AWP Alliance News) - Shares fell in New York on Wednesday after two strong sessions as minutes from the Federal Reserve showed that policymakers expect another rate hike by year-end, sending Treasury yields higher.

The Dow Jones Industrial Average closed down 341.41 points, 0.7%, at 51,179.87. The S&P 500 fell 17.16 points, 0.2%, to 7,801.77. The Nasdaq Composite ended down 61.20 points, 0.2%, at 27,538.69.

"It is a much gloomier day for global markets, though it is only 24 hours since the S&P 500 hit a new record high. But the catalogue of worries about oil prices and government borrowing costs continues to hobble the equity market. Gold and silver briefly slipped to two-month lows, while the risk-off day was completed by a rout for bitcoin," said IG Chief Market Analyst Chris Beauchamp, adding that "indices with smaller tech weightings continue to bear the brunt of the selling even after a much poorer performance of late compared with their tech-focused peers."

Federal Reserve officials expect to raise interest rates once more this year as they look to bring inflation back to 2% target, minutes published on Wednesday showed.

"With regard to the outlook for monetary policy beyond the current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the minutes of the September 15-16 Federal Open Market Committee meeting said.

"Participants emphasized, however, that they approached each meeting with an open mind and decisions at future meetings would depend on incoming information and its implications for the outlook and the balance of risks," the minutes stated.

The Federal Reserve has two meetings left this year with interest rate decisions on October 28 and December 9.

At its September meeting, the US central bank voted 12-0 to raise rates by 25 basis points, taking the target range for the federal funds rate to 3.75%-4.00%. It was the first interest hike since July 2023. Since then, the Federal Open Market Committee has lowered rates six times for a total of 175 basis points.

The New York Federal Reserve on Wednesday said median inflation expectations increased by 0.3 percentage points at the one-year horizon and by 0.1 ppt at the three-year horizon, to 3.9% and 3.3%, respectively.

"This is the highest reading for one-year-ahead inflation expectations since May 2023," the New York Fed said. Expectations remained unchanged at the five-year-ahead horizon at 3.0%.

Against the dollar, the euro was at USD1.1196, down from USD1.1260, on Tuesday. Sterling fell to USD1.3212 from USD1.3277. Against the yen, the dollar was at JPY158.05, down from JPY158.14.

Gold fell to USD4,101.94 an ounce from USD4,169.17.

The yield on the 10-year US Treasury was at 5.29% late Wednesday, up from 5.28% on Tuesday. The 30-year yield rose to 5.67% from 5.66%.

Bank stocks fell on Wednesday, as did AI-related firms amid the outlook for higher rates.

Goldman Sachs and BofA dropped 1.1%, Citigroup lost 0.9%, JPM fell 0.5% and Wells Fargo declined 1.6%.

CrowdStrike sank 4.8%, while Palo Alto Networks declined 3.4% and Meta Platforms lost 2.4%.

Analysts have raised share price targets for Marvell Technology after it delivered financial targets well above expectations at Tuesday's investor day.

At the event, Marvell raised revenue guidance for financial 2028, increased AI sales projections for financial 2029, and set out other medium-term forecasts above current expectations.

Among the brokers, JPMorgan reiterated its 'overweight' rating and raised its share price target to USD360 from USD305.

Marvell closed down 0.8% at USD284.68.

IBM and SAP on Wednesday announced a partnership to help companies update their business systems and use artificial intelligence.

The partnership combines IBM's industry expertise with SAP technologies and AI-powered consulting tools to help medium-sized and fast-growing companies move to SAP Cloud enterprise resource planning [ERP] while updating their core business systems, the announcement said.

IBM Ready for SAP Solutions is currently available in a limited number of countries and for specific industries, with plans to expand the offering to additional industries and markets globally.

IBM closed down 0.4%. SAP fell 0.2% in New York.

Hundreds of workers at a Micron Technology plant in Taiwan have voted to strike, their union said Wednesday, after talks with the US memory chip company over bonus reforms collapsed.

Micron, which makes around 50-60% of its chips in Taiwan, has been locked in talks over remuneration with two labour unions representing nearly 12,000 of 15,000 workers at its Taoyuan and Taichung plants.

The Taichung union, which represents around 11,000 workers at the larger plant, told AFP that talks with Micron will continue as scheduled, despite the strike action in Taoyuan.

Micron ended up 4.1%.

A barrel of Brent fetched USD101.03 late Wednesday, little changed from USD101.05 on Monday. West Texas Intermediate eased to USD88.96 from USD89.83.

Saudi Arabia's civil aviation authority on Wednesday said three were killed in strikes on Abha International Airport and King Khalid International Airport on Tuesday and Wednesday.

Yemen's Houthis claimed responsibility for the attacks. The nation's internationally recognised government on Wednesday said the group had carried out similar strikes on Aden airport, with one of the missiles hitting the airport's runway just minutes before a flight from Cairo was scheduled to land.

Meanwhile, International Monetary Fund Managing Director Kristalina Georgieva on Wednesday warned that high energy prices resulting from the Iran war are likely to persist for some time.

"Price pressures may build further as demand rises with the approach of the Northern hemisphere cold season and as countries replenish reserves," Georgieva said in prepared remarks for a speech in Singapore ahead of the annual meetings of the IMF and World Bank.

Brent futures now predict high oil prices through 2027, she added, even should the war end soon.

In Europe, the FTSE 100 closed down 0.8% in London. The CAC 40 in Paris lost 1.2%. The DAX 40 in Frankfurt slid 1.4%

In Asia, the Hang Seng Index in Hong Kong fell 0.6%. The Nikkei 225 in Tokyo ended down 0.9%. The S&P/ASX 200 eased 0.1% in Sydney.

Financial markets were closed in mainland China for National Day.

Thursday's corporate calendar has full year results from Fast Retailing and a half year print from Seven & I Holdings.

The global economic calendar includes US natural gas stocks, wholesale inventories and initial jobless claims.

By Aidan Lane, Alliance News reporter

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