NEW YORK, July 28 ― US stocks fell from record highs yesterday while real US bond yields hit all-time lows, as a sell-off in Chinese shares, economic growth concerns and the Federal Reserve's policy meeting put investors on guard and drove profit taking.
Unsettled by events in China overnight, where share prices skidded on concerns about the impact of a recent tightening in government regulations, global stock markets pulled back yesterday as volatility spiked.
In the United States, investors turned cautious as they awaited the Fed's policy statement at the close of its two-day meeting, which began yesterday.
All eyes will be on what Fed Chair Jerome Powell says at a post-meeting news conference today at 2pm EDT (1800 GMT), especially in relation to inflation, economic growth, interest rates and when the Fed will likely start reducing its purchases of government bonds.
Some investors worry that the fast-spreading Delta variant of the coronavirus may thwart the global economic recovery, at a time when inflation in countries such as the United States has accelerated faster than expected. A stalled economic recovery and rising price pressures would complicate monetary policy, and force central banks to balance the objectives of supporting growth and tempering price rises.
“There is some concern over where we are on monetary policy,” said Peter Kenny, founder of Kenny’s Commentary LLC and Strategic Board Solutions Llc in New York.
“There's no question that the Fed is going to address the elephant in the room, and that is inflation,” Kenny said. “It appears that inflation is not transitory.”
Analysts agree that low interest rates are generally a boon for equities and any sign of a faster-than-expected tightening in the Fed's policy ― whether raising interest rates or tapering bond purchases ― could rattle the stock market.
The Dow Jones Industrial Average ended down 0.2 per cent at 35,059 points, and the S&P 500 shed 0.5 per cent to end at 4,401 points. The Nasdaq Composite slid 1.2 per cent to 14,660 points, its biggest one-day drop since May 12, hurt by some bets that the earnings growth of tech stocks is already priced into valuations.
The pan-European STOXX 600 index finished 0.54 per cent lower and MSCI's gauge of stocks across the globe shed 0.81 per cent.
Still, losses on Wall Street and in Europe were modest compared with overnight declines in China. The blue-chip Chinese CSI300 index plunged 3.5 per cent, while the Hang Seng Tech index tumbled almost 8 per cent, losing a whopping 17 per cent in just three days.
In keeping with the muted mood in markets, the yield on 10-year Treasury inflation-protected securities (TIPS) hit an all-time low of -1.147 per cent before rebounding to -1.129 per cent.
Real, or inflation-adjusted, bond yields across major economies have fallen in recent sessions, which analysts attribute to growing concern about the economic outlook, as well as technical factors such as hefty bond-buying by central banks.
The yield on 10-year Treasury notes was down at 1.238 per cent.
Currency investors also played it safe before the Fed meeting outcome. The dollar, which has risen broadly for more than a month on expectations that, as the economy strengthened, the Fed would tighten its policies, gave up some gains yesterday as investors shunned big bets before Powell's remarks.
The dollar index fell 0.17 per cent, and a softer dollar lifted the euro by 0.16 per cent to US$1.1821 (RM4.99).
The somber mood led oil prices to give up earlier gains. US crude settled 0.36 per cent lower at US$71.65 per barrel and Brent was at US$74.48, down 0.03 per cent on the day.
The slight risk aversion amongst investors benefited bullion. Spot gold added 0.1 per cent to US$1,799.64 an ounce. US gold futures gained 0.28 per cent to US$1,799.50 an ounce.
Cryptocurrencies, a barometer of investors' risk appetites, also succumbed to the cautious overtone in markets and pared earlier gains.
Bitcoin last rose 1.8 per cent to US$37,960.44, recouping some losses after Amazon.com Inc offered a qualified denial of a weekend news report that said it was preparing to accept cryptocurrencies. ― Reuters