Global Markets Decline as US Yields Experience an Upward Trend

Global markets faced a downturn for the second consecutive day, influenced by rising US yields and uncertainty surrounding the imminent U.S. election alongside speculation about potential rate cuts.

Current Election Dynamics

Recent polling data from Reuters/Ipsos indicates that Democratic Vice President Kamala Harris has a slight edge, capturing 46% of the vote compared to 43% for Republican former President Donald Trump. As both candidates focus on pivotal swing states leading up to the November 5 election, market participants remain on edge regarding the implications for fiscal and monetary policy.

Market Reactions to Rising Yields

The notable decline in key indices such as the S&P 500 and Dow Jones can be attributed to fluctuations in industrial, materials, and utility sectors. Meanwhile, the Nasdaq managed to close higher as investors reacted to various corporate earnings reports across different segments of the U.S. economy.

• The Dow Jones Industrial Average dipped by 0.02%, settling at 42,924.89.
• The S&P 500 experienced a slight decline of 0.05%, closing at 5,851.20.
• The Nasdaq Composite increased by 0.18%, ending at 18,573.13.

Additionally, the pan-European STOXX 600 index concluded down by 0.21%, while MSCI's global stock gauge saw a 0.29% drop, landing at 851.14.

Impact of Rising Yields on Market Sentiment

David Spika, chief markets strategist at Turtle Creek Wealth Advisors, emphasized, "The increase in yields presents a significant challenge. We've observed the most considerable rise in the 10-year yield following rate cuts in the past three decades. The bond market is indicating that substantial rate cuts are unlikely in the near term. The expectation of consistent 50 basis point cuts at each meeting is not realistic."

The CME's FedWatch tool shows a 92% probability that the Federal Reserve will implement a quarter-point rate cut at its upcoming meeting on November 7, while the likelihood of no cut stands at 8%. Notably, 10-year Treasury yields increased by 2.2 basis points, reaching 4.204%, having earlier touched 4.222%, marking the highest level since late July.

Currency Trends Amid Rising Yields

In conjunction with the anticipated rate cuts, the U.S. dollar surged to a new 2.5-month high. The dollar index, which compares the dollar to a basket of currencies including the yen and euro, increased by 0.13% to 104.09, having previously reached 104.10, its highest since August.

Against the Japanese yen, the dollar strengthened by 0.21%, reaching 151.14. Meanwhile, the British pound saw a minor decline of 0.05% to $1.2978, and the euro fell by 0.17% to $1.0797.

Market strategist Eric Wallerstein of Yardeni Research commented, "There’s speculation about a 'Trump trade'; as his electoral chances improve, we’re witnessing a rise in both the 10-year yield and long-term bond yields alongside stock prices. However, I'm not entirely convinced of this narrative yet. The election odds appear fairly balanced between Trump and Harris, reflecting a broader trend of anticipated economic growth."

Commodities Overview: Oil and Gold Prices on the Rise

Oil prices rose for a second day as traders tempered expectations for a Middle East ceasefire, focusing instead on the tightening global supply-demand balance.

Brent crude futures for December climbed by 2.36%, reaching $76.04 per barrel, while U.S. West Texas Intermediate futures for November increased by 2.17%, settling at $72.09 per barrel.

Gold also reached a historic peak, with spot gold rising by 1.03% to $2,747.56 an ounce, and U.S. gold futures closing 0.8% higher at $2,759.80.

Eric Beyrich, co-chief investment officer at Sound Income Strategies, noted, "With an approaching election where both candidates are advocating for increased spending, the outlook for deficits becomes concerning. Moreover, this is an environment where expectations for interest rate cuts differ from those previously held."

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