Home Editor's Picks Equities lose ground with Treasury yields; US inflation data in focus

Equities lose ground with Treasury yields; US inflation data in focus


By Sinéad Carew and Samuel Indyk

NEW YORK/LONDON (Reuters) -Global equities declined after earlier gains on Tuesday while U.S. Treasury yields fell from a more than 4-month high as investors anxiously awaited a U.S. inflation reading and the kick-off of first-quarter earnings.

Oil prices dipped for a second straight day as talks on a ceasefire in Gaza continued but Egyptian and Qatari mediators met resistance. On Monday, Brent had posted its first decline in five sessions and WTI its first in seven days.

Trading in the dollar was volatile as investors waited for U.S. inflation data due on Wednesday and Japan’s yen hovered near multi-decade lows, keeping traders on alert for any signs of intervention.

As they look for clues as to the timing and depth of the U.S. Federal Reserve’s expected rate cuts, investors will monitor the March reading of the U.S. Consumer Price Index (CPI), due on Wednesday. It is expected to show a rise in headline inflation to 3.4% year-on-year, from 3.2% in February.

The data will be followed by the first reports of quarterly results from big banks on Friday.

“We’re on the cusp of an inflation reading and on the cusp of earnings reports. Maybe some investors want to position a little bit more cautiously going into these pivotal events,” said Jeff Kleintop, Chief Global Investment Strategist at Schwab.

“While the stock market did great in the first quarter, were earnings strong enough to justify that and is the guidance from business leaders going to be strong enough to justify that more robust outlook for growth that markets have already priced in?”

After opening higher, stocks lost ground as the morning progressed. Mona Mahajan, senior investment strategist at Edward Jones, said a “flight-to-safety” seemed to take hold in markets ahead of inflation data. She cited increased Treasury prices and gains in safe-haven segments and rate-sensitive areas.

“Ahead of the inflation report there’s a rising thought that we know what’s coming tomorrow, a slight bump in the headline and a slight decline in the core. If we get that, markets would welcome it and we’d see yields stabilize there,” Mahajan said.

As of 02:40 p.m. the Dow Jones Industrial Average fell 178.92 points, or 0.46%, to 38,713.88, the S&P 500 lost 20.02 points, or 0.38%, to 5,182.37 and the Nasdaq Composite lost 40.98 points, or 0.25%, to 16,212.97.

MSCI’s gauge of stocks across the globe fell 1.44 points, or 0.19%, to 776.60 after rising earlier.

Europe’s STOXX 600 index had closed down 0.61% as investors looked ahead to Thursday’s European Central Bank policy announcement, with markets expected to monitor President Christine Lagarde comments for hints of a June rate cut.

U.S. Treasury yields declined as investors waited for the U.S. inflation data.

Expectations for U.S. rate cuts have been receding on the back of robust economic activity and sticky inflation. Traders were pricing in a roughly 56% chance for a 25-basis-point rate cut in June versus a 61.5% a week ago according to CME Group’s (NASDAQ:CME) FedWatch tool.

The yield on benchmark U.S. 10-year notes fell 5.8 basis points to 4.366% from 4.424% late on Monday, while the 30-year bond yield fell 5.1 basis points to 4.5023%.

The 2-year note yield, which typically moves in step with interest rate expectations, fell 4.4 basis points to 4.7447% from 4.789% late on Monday.

In currencies, after falling earlier, the dollar index gained 0.04% at 104.15, with the euro down 0.06% at $1.0851. Against the Japanese yen, the dollar weakened 0.05% at 151.71.

Japanese Finance Minister Shunichi Suzuki said authorities would not rule out any options in dealing with excessive yen moves, repeating his warning that Tokyo is ready to act against the currency’s recent sharp declines.

In energy, while Middle East uncertainty continued, the U.S. Energy Information Administration said U.S. crude oil output is set to grow slightly more than earlier estimates this year and next and EIA hiked its global and domestic oil price forecasts.

U.S. crude settled down 1.39%, or $1.20 at $85.23 a barrel while Brent settled at $89.42 per barrel, down 1.06%, or $0.96 on the day.

Meanwhile, spot gold hit a record high for the eighth session in a row, supported by central bank buying and heightened geopolitical tensions, according to analysts.

Spot gold added 0.42% to $2,348.63 an ounce. U.S. gold futures gained 0.45% to $2,342.10 an ounce.

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