US Stocks Jump to Start New Quarter as Bond Yields Fall

US stocks rose on the first day of the fourth quarter, posting their biggest daily gain since August after the UK government on Monday reneged on plans for an unfunded tax cut that had spooked investors and roiled bond markets. .

Wall Street’s benchmark S&P 500 stock index closed 2.6 percent higher, while the tech-heavy Nasdaq Composite added 2.3 percent. Both indices posted their biggest daily gains since August.

US stock indices have had a rough year to date, falling in each of the three quarters through September in the longest quarterly losing streak since 2008.

“What we are seeing today is not necessarily healthy. People have high hopes and wishes and want to put September behind them, but the underlying problems are still there,” said George Goncalves, head of US macro strategy at MUFG.

U.S government bonds rallied sharply on the first trading day of the fourth quarter, with the benchmark 10-year Treasury yield falling 0.18 percentage point as it rose in price. The two-year yield, which is more sensitive to changes in interest rate forecasts, fell 0.09 percentage point to 4.12 percent. Yields on 10-year gold bonds fell similarly on Monday, falling 0.19 percentage point to 3.96 percent.

Concerns have intensified this year that the US Federal Reserve and other central banks are raising borrowing costs so quickly in their efforts to curb inflation aggravating a global economic downturn.

Markets on Monday priced in expectations that US benchmark interest rates would rise to just under 4.4 percent by March 2023, below expectations of around 4.7 percent. cent 10 days ago. The Fed’s current target range is between 3% and 3.25% after three consecutive hikes of 0.75 percentage points.

Stocks in Asia followed Wall Street higher in morning trading on Tuesday, with Japan’s benchmark Topix index rising 2.5 percent, South Korea’s Kospi rising 2.3 percent and the Taiex gaining. 1.9 percent in Taiwan.

The upbeat activity came after UK Prime Minister Liz Truss’s government scrapped plans to cut taxes on the UK’s top earners.

Chancellor Kwasi Kwarteng’s “mini” budget, which included a plan involving £45bn in unfunded tax cuts, had caused a slump in global equities and a sell-off in gilts. That finally prompted the Bank of England to intervene last Wednesday, pledging to buy long-term government bonds to stabilize the market.

UBS analysts wrote on Monday: “The biggest question for markets in the wake of the UK crisis is whether this is a one-off event confined to the UK or whether increased volatility in the global rates market is going to expose cracks in the financial system here across the pond?”

The pound advanced on Monday following Westminster Your turn, rising 1.3 percent against the dollar at $1.13 after falling to its lowest level on record last week. London’s FTSE 100 Index gained 0.2 percent.

Still, analysts remained unconvinced that sterling would go much higher. “The [U-turn] it is rather symbolic, since it is less about the amount of money you will save. . . and more about the bad signal it had given of (unfunded) ideological tax cuts,” according to strategists at ING.

US data on Monday showed manufacturing activity growth was lower than anticipated last month, with an ISM index posting a reading of 50.9 for September, the lowest since May 2020.

Economists polled by Reuters had expected a figure of 52.2, compared with August’s figure of 52.8. Any number above 50 indicates expansion.

In commodities, benchmark Brent crude rose 4.4 percent to $88.86 a barrel, helped by news that international producer alliance OPEC+ was planning a substantial output cut. Those gains, in turn, propelled energy stocks higher on Monday.

Europe’s regional Stoxx 600 index ended the day 0.8 percent higher.

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