US stocks fell as concern over an economic slowdown and prospects of higher interest rates weighed on risk sentiment. Treasuries declined, sending yields higher across the curve.
(Bloomberg) — US stocks fell as concern over an economic slowdown and prospects of higher interest rates weighed on risk sentiment. Treasuries declined, sending yields higher across the curve.
The S&P 500 Index dropped for a third day, testing the 3,900 level after the benchmark’s biggest selloff in a month Wednesday. The tech-heavy Nasdaq 100 fell more than 1%. Treasuries retreated, with the 10-year yield 4 basis points higher, mirroring moves in German bund yields after the head of the European Central Bank reaffirmed her aggressive stance.
On the earnings front, Procter & Gamble Co. slid after reporting shrinking sales volume. Alcoa Corp. fell after saying aluminum shipments will be weaker than anticipated this year. Discover Financial Services sank after the credit-card company warned write-off rates may double this year.
A rally driven by optimism over China’s economic reopening has fizzled as recent data signal a slowdown. Reports from the US this week showed declines in consumer demand and business investment, boosting prospects of a recession. That, however, didn’t deter Federal Reserve officials from reaffirming the need for tighter monetary policy.
Adding to the somber mood, the US hit its federal debt limit and the Treasury Department began the use of special measures to avoid defaulting on any payments.
Read more: Treasury Starts Maneuvering Funds to Avoid Breaching Debt Limit
Data were mixed Thursday, with new US home construction declining for a fourth-straight month in December. Applications for US unemployment benefits unexpectedly fell last week, sliding to the lowest level since September and underscoring a strong jobs market. That followed figures a day earlier showing producer prices and retail sales fell, while business equipment production slumped.
“Wage growth has slowed, and broad data is weakening, but Fed officials (at least the ones that have spoken so far) are clearly reluctant to let financial conditions ease,” writes Dennis DeBusschere, of 22V Research. “The hyper focus on anchoring financial conditions will change as inflation continues to move lower/data weakens, but there are not enough data points for the Fed to be comfortable with that call yet.”
On Thursday, Boston Fed President Susan Collins, who does not vote on policy this year, said she favors a more moderate pace of interest-rate increases. Fed Governor Lael Brainard, a voting member and considered a dove, is scheduled to speak later.
More commentary
“The factors driving the sharp YTD rally (short covering, risk bid and lower yields) appear to be hitting their near term bounds,” writes Chris Harvey, head of equity strategy at Wells Fargo. This will likely will cause the market to trade sideways-to-down over the short term.”
“Jobless claims falling for the fourth week in a row is a sign that the labor market is still seemingly able to weather the storm, though the sizable layoffs at blue chips in these past weeks indicate the economic environment is weighing on companies–especially those in the tech sector,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. “When considering that the overall earnings picture continues to be a mixed bag, investors shouldn’t be surprised to see more volatility in the weeks ahead.”
“What just some weeks ago would have seen markets cheering the weaker data as it would have suggested correctly that the Fed’s aggressive rate hike campaign is doing its job in tamping down the demand side of the economy, is now being judged more harshly with bad news no longer enjoying a warm welcome by traders and investors alike,” Quincy Krosby, chief global strategist for LPL Financial, writes. “The equity markets, always more cheerful than their fixed income brethren, have apparently begun to interpret data with a more realistic perspective.”
Key events this week:
- Japan CPI, Friday
- China loan prime rates, Friday
- US existing home sales, Friday
- IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday
Here are some of the main market moves:
Stocks
- The S&P 500 fell 0.8% as of 12:40 p.m. New York time
- The Nasdaq 100 fell 1.1%
- The Dow Jones Industrial Average fell 0.8%
- The MSCI World index fell 1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.0820
- The British pound rose 0.2% to $1.2373
- The Japanese yen rose 0.3% to 128.53 per dollar
Cryptocurrencies
- Bitcoin rose 0.5% to $20,889.2
- Ether rose 0.4% to $1,534.22
Bonds
- The yield on 10-year Treasuries advanced four basis points to 3.41%
- Germany’s 10-year yield advanced four basis points to 2.06%
- Britain’s 10-year yield declined four basis points to 3.28%
Commodities
- West Texas Intermediate crude rose 1.9% to $80.97 a barrel
- Gold futures rose 0.8% to $1,922.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Denitsa Tsekova, Srinivasan Sivabalan, Emily Graffeo, Vildana Hajric and Isabelle Lee.
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