As markets anxiously awaited clues from Federal Reserve Chair Jerome Powell regarding U.S. monetary policy, Treasury yields and the dollar remained close to multi-week lows. Concerns about another potential interest rate hike were palpable on Wednesday, casting a shadow over the financial landscape. Stocks experienced declines, driven by weakness in energy and financial sectors, while tech stocks managed to eke out modest gains. Additionally, crude oil prices slumped to a three-month low, primarily due to a substantial increase in U.S. stockpiles and concerns surrounding the Chinese economy’s impact on demand.
The possibility of U.S. policy rate cuts starting as early as May has been gaining traction recently, fueled by softer job data at the end of the previous week and a more restrained stance from the Federal Reserve. However, investors remain vigilant about the likelihood of additional rate hikes, especially in light of cautious comments from central bank officials. While Fed Governor Christopher Waller noted the need to monitor the economy after robust third-quarter GDP figures, fellow governor Michelle Bowman expressed her belief that higher rates would still be necessary. The markets are currently adjusting for a potential slowdown in U.S. economic growth, causing long-term yields and the dollar to slide. Kyle Rodda, a senior markets analyst at Capital.com, observed that the drop in oil prices is reflective of concerns about both China’s recovery and a potential slowdown in the previously resilient U.S. economy.