Tech Rises as Treasury Yields Retreat From Peak: Markets Wrap

(Bloomberg) -- Technology shares closed higher and Treasury yields retreated from the highest levels of the day as investors weighed the risk of inflation with economic growth accelerating.

The S&P 500 edged lower in the last minutes of trading to close just in the red, while lenders weighed on the Dow Jones Industrial Average after the Federal Reserve let a capital break for big banks expire. The decision had also triggered a spike in 10-year Treasury yields earlier in the day. Facebook Inc. helped the tech-heavy Nasdaq 100 recover from Thursday’s slump. Traders were whipsawed at the end of trading amid quadruple witching, a major expiration of options and futures contracts that often exacerbates swings in asset prices.

“The rising interest rates story is still dominating the moves in both the equity and the bond markets,” said Craig Fehr, an investment strategist at Edward Jones & Co. “I don’t think that where we’re at today with rates is going to undermine the broader economic recovery.”

Fed Chairman Jerome Powell reiterated in a Wall Street Journal editorial that the central bank will provide aid to the economy “for as long as it takes.”

Though the Fed has concluded the threat that Covid-19 poses to the economy isn’t nearly as severe as it was a year ago in deciding to let the bank measure expire, the regulator also said that it’s going to soon propose new changes to the so-called supplementary leverage ratio, or SLR. The goal is to address the recent spike in bank reserves that has been triggered by the government’s economic interventions during the pandemic.

“The markets will digest this as banks still have breathing room and we’ll move on, but we’ll keep a watch on how banks respond in terms of their deposit collection and Treasury purchases,” said Peter Boockvar, chief investment officer for Bleakley Advisory Group. “The reason why this issue even became so heated is solely because the Treasury is issuing so much debt to fund the spending habits of Congress, but also because of QE where the Fed is already creating massive amounts of reserves.”

Oil, one of the most-favored reflation trades, gained. But it was still heading for the biggest weekly slump since October after a selloff driven by inflation concerns and a cooling physical market.

In Europe, bond yields retreated while the Stoxx Europe 600 index declined, led by banks and retailers. China’s CSI 300 share gauge slumped on acrimonious U.S.-China talks.

Russia’s ruble gained after the country’s central bank unexpectedly raised its policy rate and signaled further tightening. Brazil and Turkey delivered larger-than-expected rate increases this week.

These are some of the main moves in financial markets:

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