Equities: Fed-driven yield spike pressures equities – Deutsche Bank

Deutsche Bank notes that the Federal Reserve’s (Fed) on-hold decision and limited detail from Chair Warsh sparked a sharp steepening in the Treasury curve, pushing the 30-year yield to 5.20% and weighing on equities. The S&P 500 suffered its worst day in seven weeks, while tech weakness dragged the NASDAQ 100 into correction territory. Asian and European equity performance is mixed.

Fed decision and yields hit stocks

"Last night’s on-hold Fed decision combined with a relative lack of detail from Chair Warsh triggered a sharp steepening in the Treasury curve, with the 30yr yield (+11.2bps) reaching a post-2007 high of 5.20% while a late sell-off left the S&P 500 (-1.52%) posting its worst day in seven weeks."

"This rise in yields ended up weighing on equities after some big intra-day swings. The S&P 500 went from trading more than half a percent down pre-FOMC to higher on the day during Warsh’s press conference but then saw a sharp drop in the final hour of trading to close -1.52% lower."

"Equities were also weighed down by another rout in chip stocks, with the Philly semiconductor index slumping by -5.33%. The tech declines also brought the NASDAQ 100 (-2.06%) into technical correction territory with the index now down -11.3% from its early June peak."

"European equities were mostly weaker, with the Stoxx 600 (-0.29%), CAC (-0.60%) and FTSEMIB (-0.49%) all lower, though the UK’s FTSE 100 advanced (+0.34%)."

"However, the equity mood is mixed across Asia this morning. The Nikkei (+0.75%) is recovering after declines over the previous two sessions, but the KOSPI (-1.30%) is moving lower following on yesterday’s steep -5.98% decline. Korea’s index had climbed as much as +5.50% early in today’s session before giving up the gains, with index heavyweight Samsung down about -2% after its Q2 earnings, which included a more than 250-fold year-on-year rise in semiconductor profits."