Tech Tanks As Yields Rise, USD Dominates

Worries about rising interest rates and inflationary pressures are hitting stocks. Thursday, Mary Daly of the Federal Reserve, announced the war on inflation is not over, and Daly said the Fed might hike rates by 0.5% or perhaps 0.75% next month – either one is a possibility. The remarks ticked up concerns the Fed might do another large rate hike next month, and that has pushed up the US 10-year yield to 2.99%. In recent months, whenever the yield crossed the 3% mark, it typically had a big impact on equities. It is hardly a surprise the Nasdaq 100 is suffering the most out of the US indices as technology stocks usually fall the furthest when yields rise. Yields are also in focus in Europe as inflationary fears are circulating. The German PPI reading jumped to a record high of 37.2%. PPI measures the costs that producers incur and if costs are rising at the factory level, it is likely they will rise for consumers. CPI in the wider eurozone is 8.9%, a record high, so today’s German PPI data points to further inflationary pressure in the region. The European Central Bank will hold its next meeting in September and the bank is contemplating another big rate hike, which is pushing up bund yields and denting the DAX.          

Daly’s comments set the wheels in motion for a powerful rally in the greenback, the US dollar index hit its highest level since mid-July. On the other side of the coin, EUR/USD and GBP/USD traded at one-month lows. Sterling is lower across the board even though UK retail sales increased by 0.3% last month, and that easily beat the -0.2% forecast. The yearly report showed a fall of 3.4%, so it seems that is the figure that caught traders’ attention. 

Commodities are under the cosh due to the jump in the US dollar. Also playing into the mix are the worries that high inflation will eat away at demand. Industrial metals such as platinum and silver were down on the session because the global manufacturing outlook is not too rosy. Gold traded at a three-week low due to the strength of the US dollar. WTI was in the red earlier, but it swung into positive territory.