Treasury yields fell following the latest economic reports. The yield on the 10-year Treasury slipped to 4.10 per cent from about 4.15 per cent just before the latest GDP report. It stood at 4.12 per cent late Tuesday.
The yield on the 2-year Treasury, which tracks expectations for the Fed, fell to 4.87 per cent from a level of 4.90 per cent prior to the latest GDP release. It stood at 4.89 per cent late Tuesday.
“Right now, what’s bad is good,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. “It feels like this week, anyway, we’re fully back into bad economic news is good for the market.”
The latest round of economic updates are signalling that the Fed may be able to pause hiking its main interest rate, which it has pushed to its highest level since 2001 in an effort to tame inflation. The central bank held rates steady at its last meeting and investors expect the same at its upcoming meeting in September.
Wall Street is also hoping that economic data this week shows that the Fed’s goal of a “soft landing” is possible. The central bank’s goal has been to raise interest rates enough to tame inflation without crashing the economy into a recession. A strong job market and consumer spending has helped thwart a recession and analysts are divided on whether one will occur with any severity.
On Thursday, the government will release its latest update on inflation with the July report on personal consumption and expenditures, or PCE. That’s the Fed’s preferred measure for inflation, and it has been cooling for months. PCE eased to 3 per cent in June and was as a high as 7 per cent a year ago.
On Friday, the government’s monthly employment report for August will cap a heavy week of updates about hiring and jobs.
“If you have modest growth and modest inflation and that’s what we’re moving toward, stocks will have a bumpy road in the interim, but that’s a good environment for stocks,” Wren said
Markets in Asia were mixed and European markets mostly fell.