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Stocks Strengthen; Yields, Dollar Rise on Fed Taper Talk

The Dow Jones Industrial Average and S&P 500 both touched record intraday highs.

The Dow Jones Industrial Average rose 171.08 points, or 0.49%, to 35,272.93, the S&P 500 gained 6.27 points, or 0.14%, to 4,438.62, and the Nasdaq Composite dropped 64.83 points, or 0.44%, to 14,795.34.

European shares extended gains for a seventh straight session as investors took comfort from strong earnings reports and economic recovery prospect.

The pan-European STOXX 600 index rose 0.35%

“Domestically and globally, we’re seeing economies recovering from the pandemic. It’s a good period for investing,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

Sentiment was further boosted by the U.S. Senate passing a $1 trillion bipartisan infrastructure bill that could provide the United States with its biggest investment in decades in roads, bridges, airports and waterways.

Activity, meanwhile, was heating up in bond markets.

Indications in recent days of an improving labor market have prompted investors to rethink the outlook for U.S. monetary policy, halting recent sharp falls in both U.S. and European bond yields.

U.S. 10-year Treasury yields scaled their highest in over three weeks, rising as high as 1.336% in London trade and extending the longest run of gains since early February.

The benchmark 10-year Treasury yield, which reached 1.346%, its highest level since July 15, last fell 8/32 in price to yield 1.3439%, from 1.317% late on Monday.

Speculation is mounting that Federal Reserve Chair Jerome Powell could signal it is ready to start easing monetary support in a speech to be delivered at the annual Jackson Hole conference of central bankers.

“Expectations have clearly shifted for Fed Chair Powell to turn hawkish at Jackson Hole and make a formal announcement on tapering asset purchases at the September FOMC meeting,” said Ed Moya, senior market analyst at OANDA in New York.

Adding fuel to the debate, two Fed officials said on Monday that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.

Data on Monday showed that U.S. job openings shot up to a fresh record high in June and hiring also increased.

That followed Friday’s nonfarm payroll report showing jobs increased by a larger-than-anticipated 943,000 in July.

While signs of economic recovery in the United States are reviving reflation trade bets, investors remain wary of the lingering risks posed by COVID-19.

China on Monday reported more COVID-19 infections in what seems to be its most severe resurgence of the disease since mid-2020, as some cities added rounds of mass testing in a bid to stamp out infections.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.4% after trading much of the day in the red as worries weighed about the spread of the Delta variant.

With tapering expectations gaining traction, the dollar extended its gains made on Friday and Monday.

The dollar index rose 0.07%, with the euro down 0.13% to $1.1722.

Oil prices rose, recouping some of the losses in the previous session when prices slipped to a three-week low. [O/R]

U.S. crude oil futures settled at $69.29 per barrel, up $1.81 or 2.72%. Brent crude futures settled at $70.63 per barrel, up $1.59 or 2.3%.

U.S. gold futures settled up 0.3% at $1,731.70.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Paulina Duran in Sydney Editing by Jonathan Oatis and Mark Heinrich)


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