The benchmark 10-year yield stabilized at 4.77% after peaking at 4.805% during New York trading, marking the highest point since early November 2023. U.S. equity futures also found some stability, with S&P 500 futures rising by 0.25% and Nasdaq 100 futures increasing by 0.5% early Tuesday in Asia.
The Nikkei fell by 1.5%, while stocks in Hong Kong, China, and Australia saw modest gains.
On Monday, the Nasdaq dropped by 0.4%, reaching a two-month low, while the S&P 500 managed to recover slightly from its own two-month low.
The U.S. dollar index reached its highest level in over two years on Monday but pulled back slightly following a Bloomberg News report indicating that the incoming Donald Trump administration was considering a gradual approach to tariffs rather than an abrupt one.
Market sentiment has been tense since a robust U.S. payrolls report led to rising yields and diminished expectations for Federal Reserve interest rate cuts. Investors are also concerned about the potential for inflation to rise due to the tariff, immigration, and tax policies of President-elect Donald Trump's administration.
The upcoming U.S. consumer price index report on Wednesday is critical, as any increase in the core rate exceeding the anticipated 0.2% could eliminate the possibility of easing monetary policy.
"The Fed has become more hawkish at this time," stated Peter Cardillo, chief market economist at Spartan Capital Securities in New York. He noted that "the Fed has adopted a more hawkish stance," and investors are contemplating that the U.S. may have reached the end of interest rate cuts for the time being, with markets currently pricing in only 29 basis points of cuts from the Fed this year.
CRUDE AWAKENING
A significant factor contributing to the current situation is the rise in oil prices, which have reached four-month highs due to indications of reduced shipments from Russia as the U.S. intensifies sanctions against the nation. Benchmark Brent futures have surged past their 200-day moving average, trading at $80.73 per barrel on Tuesday.
Interestingly, the turbulence in traditional financial markets has also affected cryptocurrencies, with Bitcoin, now just under $95,000, experiencing a nearly 7% decline over the past week.
In the foreign exchange market, the euro remained stable at $1.02475, close to the more than two-year low of $1.0177 it reached on Monday. The yen was quoted at 157.54 per dollar, slightly recovering from the near six-month low it hit last week.
The yen did not show significant movement following balanced comments from Bank of Japan Deputy Governor Ryozo Himino.
The dollar index, which gauges the U.S. currency against a selection of others, reached its highest level in over two years at 110.17 overnight, before settling at 109.62.
The fourth-quarter earnings season in the U.S. begins on Wednesday, with major banks such as Citi and JPMorgan Chase set to report their results.
Oliver Pursche, senior vice president and advisor for Wealthspire Advisors in Westport, Connecticut, noted, "The question investors are grappling with is what's more important - strong corporate earnings, which come from a strong economy, or lower inflation, which comes from a weaker economy," He added,
"Most investors would prefer a strong economy with slightly elevated inflation," he said.