By Jamie McGeever
ORLANDO, Florida, Aug 24 (Reuters) – U.S. bond yields fell and tech weighed on U.S. stocks on Monday, as investors digested a raft of economic measures and developments coming out of Washington: U.S. Treasury’s plans to increase buybacks of long-dated bonds, new ‘economic D-Day’ sanctions to isolate Iran, and the threat of new tariffs on Canada.
In my column today, I look at whether U.S. Treasury Secretary Scott Bessent faces a credibility problem. The evidence is mounting — the Treasury’s recent surprise FX and bond market interventions have unnerved investors, and by Bessent’s own stated goals of reducing the deficit and lowering bond yields, he is falling short.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. US unveils ‘economic D-Day’ of sanctions to isolate Iran
2. Trump threatens 50% tariffs on all cars and trucks from Canada amid trade fight
3. Bond market anxiety raises stakes for Warsh’s debut Jackson Hole speech
4. Traders are bracing for an increasingly hawkish ECB
5. Alibaba shares slide after $10.2 billion AI share sale offered at sharp discount
Today’s Key Market Moves
• STOCKS: Asia in the red (KOSPI -3%, Nikkei -0.7%), Europe flat, UK +0.4%, Wall Street mixed (Dow +0.3%, S&P 500 -0.3%, Nasdaq -0.8%)
• SECTORS/SHARES: Eight sectors on the S&P 500 rise, three fall. Comms services, financials, utilities, consumer staples up 1% or more, tech -1.6%. Nvidia -3%; Seagate, SanDisk, Micron all down ~6%. Expedia +5.5%, Visa +3%, Walmart +2.7%.
• FX: Dollar +0.2%, its best day in two weeks. CAD is biggest G10 loser on new tariffs. Bitcoin extends rally, +2% to nudge $80k. Bitcoin +25% in just over a week.
• BONDS: U.S. yields down 5 bps at long end, curve flattens.
• COMMODITIES/METALS: Oil -2.5%, only its second fall in 14 sessions. Gold +1% to highest since mid-May.
Today’s Talking Points:
Vigilance against the vigilantes
U.S. Treasury Secretary Scott Bessent seems to be stepping up the fight against the “bond vigilantes”. CNBC reported on Monday that part of his arsenal could be cash at the Treasury General Account to fund the purchase of longer-dated bonds instead of issuing short-term bills. Markets seemed to give the idea the thumbs up, with the 30-year yield falling 5 basis points and the curve flattening.
But is the TGA really a longer-term source of funding for what Bessent last week called a “Treasury Twist”? Apart from emergencies, Treasury wants a chunky TGA balance. Bill issuance is rising, and so too is Treasury’s reliance on bills for funding. This increases rollover risk, which necessitates a larger TGA buffer. Leaning more heavily on short-term bill issuance and simultaneously reducing cash on hand to mitigate rollover risk would seem to be a counter-intuitive and dicey proposition.
Tariff tremors
Talking of firepower, U.S. President Donald Trump has loaded up the tariff guns again, and is turning them on an ally, neighbor, and key trading partner Canada. Trump is threatening to impose 50% levies on certain Canadian goods, including all cars, trucks and auto parts. These duties will kick in on January 1 next year if no agreement is reached by then.
Canada is not flinching. Not yet, anyway. Prime Minister Mark Carney has retaliated with “dollar for dollar” tariffs on imports of U.S. steel, electronics and other products, to take effect on September 8. Trump’s approval ratings are at an all-time low, and with the midterms looming, perhaps he feels the need to flex some muscle on the international stage. For his part, perhaps Carney senses Trump’s domestic vulnerability so is taking up the fight. Either way, relations between the two countries are deteriorating.
Ace in the Jackson Hole
Fed Chair Kevin Warsh will deliver the keynote address at the Kansas City Fed’s annual Jackson Hole symposium on Friday. The eyes of the financial world are on him. Warsh wants to improve the Fed communications strategy, but only three months into his tenure, his communications have raised more questions than answers. How does he plan to get inflation back to target? How committed is he to the 2% inflation goal? Will he resist President Trump’s demand for lower interest rates?
His task has arguably been complicated by Treasury Secretary Scott Bessent, who last week said Treasury will temporarily expand buybacks of long-dated bonds. Essentially, Treasury wants to get yields down, juice GDP, and grow the economy out of the debt hole it’s in. But this is inflationary, and inflation has already been above target for more than five years. Warsh has said bond yields are a useful signal, and Bessent wants to actively massage them lower. Contradictions that require clearer communication.
What could move markets tomorrow?
• Reserve Bank of Australia publishes minutes of last policy meeting
• Germany Ifo business index (August)
• U.S. consumer confidence (August)
• U.S. Treasury sells $69 billion of 2-year notes at auction
• Richmond Fed President Thomas Barkin speaks
Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever;)
Comments