NEW YORK, April 15 ― Wall Street stocks finished lower while bond yields and the dollar rose yesterday as investors worried about the potential for aggressive US policy tightening as other central banks around the world moved to reduce support.
The benchmark 10-year US Treasury yield jumped, following two days of declines, after a flurry of US economic data such as retail sales and jobless claims and the European Central Bank's announcement of less aggressive than expected tightening plans.
New York Fed President John Williams said yesterday that the US Federal Reserve should reasonably consider raising interest rates by a half percentage point at its next meeting in May, which was seen as a further sign that even more cautious policymakers are on board with bigger rate hikes.
This was after the ECB said it plans to cut bond purchases ― known as quantitative easing ― this quarter, then end them at some point in the third quarter.
Investors also eyed hefty rate hikes by New Zealand's central bank and the Bank of Canada, and a surprise rate hike by the Bank of Korea as well as policy tightening by the Monetary Authority of Singapore.
These moves all exacerbated bond yield increases and stock price declines, according to Mona Mahajan, senior investment strategist at Edward Jones who also noted that today's data showed the Fed's need to act fast.
“All systems are go for the Fed to move pretty aggressively,” said Mahajan. “Generally it's a global battle to fight inflationary pressures.”
US stocks had gained on Wednesday on hopes that price increases could be peaking. But Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut, saw yesterday's trading action as a sign that there was little conviction behind those hopes.
The Dow Jones Industrial Average fell 113.36 points, or 0.33 per cent, to 34,451.23 while the S&P 500 lost 54 points, or 1.21 per cent, to 4,392.59 and the Nasdaq Composite dropped 292.51 points, or 2.14 per cent, to 13,351.08.
After the pan-European STOXX 600 index rose 0.67 per cent and MSCI's gauge of stocks across the globe shed 0.71 per cent.
“Today's probably the right reaction,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in St. Louis. “Until inflation is under control, it's not under control. There's too much uncertainty.”
Samana also pointed to the tone of the ECB's comments about threats to growth heading in the wrong direction will risks to inflation are “to the upside.”
Meanwhile in forex, the euro plunged to a two-year low against the dollar as comments from ECB President Christine Lagarde were viewed as a sign that the bank was in no rush to raise interest rates. Read full story
The dollar index rose 0.524 per cent, with the euro down 0.52 per cent to US$1.0828 (RM4.57).
The Japanese yen weakened 0.21 per cent versus the greenback at 125.94 per dollar, while Sterling was last trading at US$1.3076, down 0.30 per cent on the day.
Benchmark 10-year notes last fell 36/32 in price to yield 2.8275 per cent, from 2.689 per cent late on Wednesday.
Along with the moves by Seoul and Singapore, New Zealand's central bank raised interest rates by a hefty 50 basis points on Wednesday, the biggest hike in over two decades. The Bank of Canada also raised rates by the same level, making its biggest single move in more than two decades and flagging more hikes to come.
Oil prices rose yesterday after an early decline as investors covered short positions ahead of the long weekend and on news that the European Union might phase in a ban on Russian oil imports.0/R
US crude rose 2.02 per cent to US$106.36 per barrel and Brent was at US$111.41, up 2.42 per cent on the day.
Gold eased yesterday after the dollar strengthened and yields rose as investors geared up for US interest rate hikes, but safe-haven demand triggered by the Ukraine crisis and mounting inflation kept bullion on track for a weekly gain.
Spot gold was last down 0.3 per cent to US$1,971.40 an ounce. ― Reuters
