Investors digest rising bond yields and weakness out of China

China’s central bank lowered its one-year loans prime rate by 10 basis points to a record low of 3.45% at its August fixing but kept the five-year loan prime rate unchanged at 4.2%.  PBoC reduces LPR by 10bps. Equity traders reeling from the market’s worst stretch since February face some pivotal events in the days ahead, and a closely watched speech by Federal Reserve Chair Jerome Powell at the annual Fed symposium Jackson Hole attended by the top central bankers from around the world. US stock futures steadied on Monday after the major averages suffered another losing week, as higher Treasury yields and hawkish signals from the Federal Reserve pressured equities. Dow and S&P 500 futures were flat, while Nasdaq 100 futures rose 0.18%. 

Summary for 21.08.2023 

• The People’s Bank of China (PBoC) slashed its 1-year loan prime rate (LPR) by 10bps to a record low of 3.45% while unexpectedly holding steady the 5-year rate, a reference for mortgages, at 4.2%. 
• Monday’s decision followed a surprising reduction in both short-term loan rates and the medium-term policy rate by the central bank last week, as it seeks to strike a balance between helping the faltering Chinese economy and stemming further weakness in the yuan. 
• The dollar index held steady above 103 on Monday, hovering close to its highest levels in over two months 

• Last week, the Dow fell 2.21%, the S&P 500 dropped 2.11% and the Nasdaq Composite tumbled 2.59%, with the last two benchmarks posting their third consecutive losing week. 
• Minutes of the Fed’s July meeting released last week showed that policymakers remained concerned about upside risks to inflation, leaving the door open for further policy tightening. 
• Hong Kong’s Hang Seng index closed Friday trade in bear market territory, down 2.1% on the day and almost 21% from its January highs. 
• The pan-European Stoxx 600 index followed suit, down 1% on the day and more than 3% for the week, while U.S. stock futures pointed to another lower open on Wall Street. 
• WTI crude futures rose above $81 per barrel on Monday, gaining for the third straight session on growing optimism that Chinese authorities would introduce more policy measures to boost economic growth. 

• Eyes on bond yields ahead of Fed’s Jackson Hole event Stock valuations have been pressured in part by a sharp rise in bond yields, with the U.S. 10-year hitting 10-month highs last week at 4.328%. Early Monday, yields were holding at 4.253% and a break above 4.338% would take them to levels not seen since 2007. 
• Gold prices edged up from 5-month lows on Monday after declining in the previous five sessions, as investors saddled up for a gathering of central bankers in Jackson Hole, Wyoming this week for an outlook on the economy and interest rates. 
• Several major market events in the week ahead as investors are awaiting the latest quarterly results from key artificial intelligence beneficiary Nvidia on Wednesday.