U.S. stocks bounced higher Friday, while Treasury yields retreated from yesterday's leap, as investors re-group from a hawkish message on rate hike from Federal Reserve Chairman Jerome Powell and notably weak auction of benchmark 30-year bonds.
Powell's opening remarks to an IMF-organized event in Washington Thursday, during which he said the Fed would "not hesitate" to execute another rate hike while insisting overall policy conditions are not restrictive enough to tame inflation pressure, triggered a sharpy spike in Treasury yields and a turnaround in stock prices.
He also stressed that the Fed would be "attentive" to price pressures given that there is a "long way to go" to return inflation to the central bank's preferred 2% target.
His comments, however, also came within an hour of one of the worst long bond auction on record, as the third of the three new beefed-up sales from the Treasury drew muted interest from both foreign and domestic investors, forcing the government to offer a sharply higher yield in compensation.
The upward moves in Treasury yields eased somewhat in early New York trading, with benchmark 10-year notes down 3 basis points to 4.624% in early dealing and pegged 2-year paper at 5.020%.
Nonetheless, elevated levels suggest both market concern for the billions in new supply that will need to be taken down over the coming months to fund record government deficits and the prospect of a final rate hike from the Fed into the start of the new year.
Collectively, the leap also snuffed-out the longest rally on Wall Street in two years, as the higher yield backdrop forced stocks lower into the close of trading Thursday, with ripple effects spread to markets around the world.
Asia shares fell to the lowest level in a week, with the region-wide MSCI ex-Japan index slumping 1.13% into the close of trading, while European shares retreated from their highest levels in three weeks with the Stoxx 600 benchmark falling 1.24% in mid-day Frankfurt dealing.
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Broader concern for the strength of the global economy was also evident in weak oil prices, which are set for their third consecutive weekly decline despite the ongoing conflict between Israel and Hamas, which is threatening to draw in Iran and extended production cuts from OPEC allies Russia and Saudi Arabia.
Brent crude futures for January delivery, the global benchmark, were last seen trading $1.40 higher on the session at $81.41, still near the lowest levels since July, while WTI contracts for December rose $1.41 higher to $77.15 per barrel.
On Wall Street, stocks are looking to stabilize following last night's sell-off, which was compounded by an outsized 5.5% slump for Tesla TSLA and a 4.5% pullback for drugmaker Eli Lilly LLY.
The S&P 500 was marked 58 points, or 1.34% higher into the final hour of trading, while the Dow Jones Industrial Average gained 310 points. The tech-focused Nasdaq was up 255 points.
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