*Pelosi said her trip demonstrated American solidarity with the Chinese-claimed self-ruled island, but China condemned that first such visit in 25 years as a threat to peace and stability*
Both indexes swung between gains and losses throughout the session as markets remained on edge with geopolitical tensions simmering and commentary from Fed officials making it apparent that a policy pivot was less likely.
*Treasury yields rose across the curve, with 10-year rates climbing as much as 20 basis points to 2.77%. The yen, which was on track for its fifth daily gain, fell as the dollar snapped four days of losses amid a sudden turnaround in risk sentiment.*
Stocks ended a seesaw session slightly lower on Monday, with the Dow falling less than 50 points, or 0.1%, while the S&P 500 lost 0.3% and the Nasdaq Composite ticked down 0.2%.
*Volume on U.S. exchanges was relatively heavy, with 11.2 billion shares traded, compared to an average of 10.8 billion shares over the previous 20 sessions.*
*What drove stocks*
*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.*
Tom Essaye, founder of Sevens Report Research, said that Tuesday’s session “wasn’t a bad performance overall, but ‘not bad’ isn’t going to be good enough to push the S&P 500 to 4,200. We need actual good news and there wasn’t any on Tuesday. Not starting a war between the U.S. and China wasn’t enough,” Essaye told MarketWatch by phone.
*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.*
*Pelosi’s trip has created a fresh pressure point for investors already dealing with the prospects of a US recession, worldwide rate hikes and inflation that risks becoming entrenched as Russia’s war in Ukraine exacerbates food shortages.*
*The Taiwan story fits into the broader risk-off theme. It raises concerns about global growth issues, especially if geopolitical tensions and knock-effects exacerbate inflationary concerns. In turn, that forces central banks to keep fighting inflation in spite of the clear deceleration of global growth.*
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%.
*Stocks started August on the back foot after posting their best month since 2020 in July. Investors have been keeping an eye out for hawkish comments from Fed officials about the need for higher rates to restrain elevated inflation.*
*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.*
By: via @AlliesFin Serve Stock Market
