The First Slice for Wednesday, August 3, 2022

U.S. stocks finished lower on Tuesday for the second day in a row, as investors analyzed hawkish talk from a pair of senior Federal Reserve officials and parsed the implications of House Speaker Nancy Pelosi’s historic trip to Taiwan.

  • The Dow finished lower at closing at -402.23 or -1.23%
  • The S&P 500 fell -27.44 or -0.67%
  • The Nasdaq shed -20.22 or -0.16%

U.S. stocks tumbled into the closing bell on Tuesday after Pelosi’s plane landed without incident in Taipei Tuesday night local time, or late morning in New York, in defiance of China.

Pelosi became the highest-ranking elected U.S. official to visit the island in 25 years. Her trip comes as part of a visit abroad that has taken the speaker to Singapore, Malaysia, South Korea, and Japan for talks on a variety of topics, including trade, COVID-19, climate change, and security. It’s worth noting that a bevy of Congressional Republicans visited Taiwan last summer. 

After denouncing the trip, Beijing announced plans to carry out military drills and missile tests in an area encircling Taiwan. Meanwhile, Taiwan’s government claimed that nearly two dozen Chinese warplanes entered its airspace on Tuesday, and also claimed that a cyberattack had been perpetrated against the website belonging to the Office of the President. 

The tensions sparked initial demand for safe-haven assets, with gold prices rallying Tuesday. The 10-year Treasury note fell in early trade but bounced back to rise around 13.5 basis points to 2.74%, its highest level in a week. Yields and debt prices move in opposite directions. 

But the main action in Treasuries was seen at the short end of the curve on Tuesday, where the two-year yield climbed 16.8 basis points to 3.077%, according to Dow Jones Market Data, while the three-month Treasury bill yield increased by 15 basis points to 2.46%.

Fed speakers were also in focus Tuesday. San Francisco Fed President Mary Daly said the Fed is “nowhere near” finished with its fight against inflation, while Chicago Fed President Charles Evans said he hoped the Fed could raise rates at a slower pace later in the year, but that it would ultimately depend on the data. Neither Daly nor Evans has a vote on the Fed’s rate-setting committee this year………Full Loaf Hot Link[read more]

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