US markets retreat as Fed hikes rates and Treasury yields rise

US equities ended lower on Wednesday after the Federal Reserve (Fed) raised interest rates by 25 basis points, as expected by financial markets. The S&P 500 fell 0.40%, the Dow Jones Industrial Average shed 631 points, while the Nasdaq 100 closed broadly flat. The 10-year US Treasury yield rose above 5.01%, its highest level in 19 years, as investors assessed the rate increase and projections for one or two additional rate hikes. The outlook reflected upward revisions to inflation and GDP growth forecasts, alongside expectations for lower unemployment, while soaring energy prices added to inflationary pressures.

The market reaction followed a more hawkish tone from Fed Chair Kevin Warsh, who prioritised the fight against inflation and reiterated that current inflation measures remain elevated. Longer-term Treasury maturities rose less than shorter-dated rates, while Treasuries also remained under pressure from competition for capital allocation as corporate debt issuance increased. Higher inflation and soaring corporate debt supply continued to put pressure on the bond market.

Credit-sensitive sectors came under pressure, with Bank of America falling 2.70%, Wells Fargo losing 3% and Citi declining 2.40%. Technology stocks also retreated, with Microsoft down 1.40% and Alphabet losing 0.60%.

European equities edged higher as well, recovering from the previous session’s three-month low as a pause in the recent oil-price rally supported investor sentiment. The STOXX Europe 600 rose 0.60%, marking its strongest daily gain in a month, while the Euro STOXX 50 advanced 0.48% to 6 266.50. The FTSE 100 and CAC 40 each gained around 0.60%, while Germany’s DAX rose 0.30%. According to Reuters, energy stocks were among the weakest performers, while travel and leisure shares gained 1.20% as lower oil prices eased concerns over fuel costs. Semiconductor-related stocks also performed strongly, with Soitec rising 13.40% after JPMorgan upgraded the stock to overweight from neutral.

Asian markets closed higher, recovering from recent weakness as technology shares, particularly in the artificial intelligence space, regained ground. Investors remained cautious, however, amid elevated oil prices and key central-bank policy decisions. Japan’s Nikkei 225 rose 0.69% to 63 923.00, while China’s Shanghai Composite advanced 0.71% to 3 891.60 and Hong Kong’s Hang Seng edged up 0.19% to 24 713.78.

The local bourse lost momentum towards the close, with the All Share Index dropping 0.41% and Industrials leading the losses with a fall of 1.21%. The Top 40 closed 0.48% lower and Financials ended 0.55% down. The rand weakened against the US dollar to trade at R16.38 at 20h55 SAST. Despite the market’s weakness, domestic retail sales exceeded expectations, rising 3.40% year-on-year in July — well above the 0.90% forecast and marking the strongest increase since January.

On the commodity front, oil prices retreated on Wednesday, although the fragile situation in the Middle East continues to keep supply risks elevated. Brent crude traded at $105.51 per barrel, down 2.98%, while prices also eased as markets weighed expectations that Saudi Arabia could begin restoring capacity on a key East–West pipeline affected by recent damage. Saudi Aramco is reportedly working on a temporary route around the damaged section, with around half of the pipeline’s capacity potentially returning within days and full operations expected to take several weeks. US Energy Secretary Chris Wright said the disruption could be resolved within days, although independent analysts have cautioned that repairs may take longer.

In precious metals, gold pared some of its gains, trading at $4 275.09 an ounce, up 0.41%, while silver dropped to roughly $63 per ounce.