Bond Yields Rise on Powell’s Wait-and-See Signals: Markets Wrap

This content was published on February 11, 2025 - 17:26

8 minutes

(Bloomberg) — Treasury yields rose and stocks fluctuated as Federal Reserve Chair Jerome Powell reiterated the central bank is in no rush to cut rates.

Bonds fell across the US curve, with longer-maturity Treasury yields climbing more than shorter ones. Money markets continued to fully price in just one quarter-point rate cut by the central bank this year, by September. Most shares in the S&P 500 retreated, though a rebound in tech pushed the gauge away from session lows. Apple Inc. led gains in megacaps, while Meta Platforms Inc. lost steam after a 16-day winning streak. Intel Corp. jumped 8%. The dollar edged lower.

*POWELL: UNWISE TO SPECULATE ON TARIFF POLICY AT THIS TIME

“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said in remarks prepared for testimony Tuesday before the Senate Banking committee.

Just a day ahead of a key reading on inflation, the Fed chair is facing a tough set of hearings on Capitol Hill. The labor market remains sound, which officials have said also allows them to be patient in considering further interest-rate reductions. Powell on Tuesday described the labor market as “broadly in balance” and “not a source of significant inflationary pressures.”

He also told lawmakers the US central bank makes no decisions related to outgoing government payments, following a controversy over control of the Treasury Department’s system used to pay contractors, federal workers and other recipients. Powell is testifying before the Senate Banking Committee Tuesday, and before the House Financial Services Committee on Wednesday.

The S&P 500 was little changed. Thee Nasdaq 100 fluctuated. The Dow Jones Industrial Average added 0.1%.

The yield on 10-year Treasuries advanced three basis points to 4.53%. The Bloomberg Dollar Spot Index lost 0.2%.

Wall Street’s Reaction:

Peter Boockvar, author of The Boock Report:

Sticking to what I believe was Jay Powell’s goal today with his prepared text, to say nothing new and reveal no breaking news, he reiterated what the Fed said at their January meeting. The rest of the speech goes over the labor market and inflation but says nothing we don’t already know.

Bradley Saunders at Capital Economics:

Fed Chair Jerome Powell stuck to the line that the Fed was in no hurry to adjust its policy stance in his semi-annual testimony to Congress today. Given that inflation remains above target and the likelihood that new tariffs will push it even higher in the second half of this year, we do not expect the Fed to lower interest rates any further in 2025.

US inflation showed scant signs of downward momentum at the start of the year, while healthy job growth undergirded the economy, backing the Fed’s stance to hold the line on interest rates for now.

Bureau of Labor Statistics figures due on Wednesday, shortly before the second half of Powell’s two-day testimony marathon, are forecast to show the consumer price index excluding food and energy rose 0.3% in January for the fifth time in the last six months.

Compared with a year earlier, core CPI is forecast to have risen 3.1%. While marginally lower than than the annual figure for December, that’s just a 0.2 percentage point decline from the middle of last year.

“With the labor market remaining strong and inflation still slightly above the Fed’s target, it’s not surprising that traders are pushing out prospects of another interest rate cut from the Fed toward the middle of the year,” said Matthew Weller at Forex.com and City Index.

Weller bets the volatility around this week’s inflation reading may be more limited than in the past, as the Fed will, in all likelihood, still get another handful of inflation and jobs reports before making any additional changes to interest rates.

“That said, a pickup in price pressures could lead traders to start asking whether the Fed’s interest rate cutting cycle may be completed already, complicating the path forward for a central bank that has clearly been hinting that the easing cycle isn’t done yet,” he noted.

Investor exposure to US stocks has weakened as outright bullish bets have halved and gross positioning has decreased, according to Citigroup Inc. strategists.

“While three months ago, the trade was US versus the rest of the world, recent changes in positioning flows shows this trade is fading, if not reversing,” the team led by Chris Montagu wrote in a note

The strategists say that while net positioning is still moderately bullish for the S&P 500 and Nasdaq, gross positioning levels are noticeably lower, especially for the Russell 2000.

“Europe on the other hand appears to have benefited from this change.” they noted. “This is not to say that investors are getting overly excited about the investment prospects for Europe, but there is a sense that with the right positive catalysts this market could prove to be attractive.”

Corporate Highlights:

Boeing Co. delivered more jets in a month than Airbus SE for the first time in almost two years as the planemaker begins to recover from a lengthy strike and years of turmoil.
Coca-Cola Co.’s profit beat Wall Street expectations as shoppers paid higher prices for the company’s sodas, energy drinks and juices.
Shopify Inc. reported quarterly revenue that exceeded expectations, suggesting its e-commerce software solutions stood out with merchants during the busy holiday quarter.
Humana Inc. will cut membership in its Medicare Advantage plans, its biggest business, while spending to improve government quality ratings that have hurt revenue from the program.
Travelers Cos. said it expects about $1.7 billion of pretax losses from the wildfires that devastated Los Angeles last month.
DuPont de Nemours Inc.’s earnings jumped on growth in the electronics market, suggesting the conglomerate’s push to cut costs and break up into smaller, more focused businesses is paying off.
WK Kellogg Co. posted fourth-quarter profit that topped Wall Street’s expectations, even as the cereal maker called out challenges weighing on sales.
Marriott International Inc.’s guidance for net rooms growth in 2025 proved softer than some analysts expected.
Elliott Investment Management disclosed a more than $2.5 billion stake in oil refiner Phillips 66 and plans to push the company to sell or spin off its pipeline business.

Key events this week: