Stocks Slide With Bonds After US Yield Spike: Markets Wrap

(Bloomberg) — Stocks fell and bonds retreated, tracking a drop in US Treasuries overnight after weak debt auctions and hawkish remarks from a Federal Reserve speaker.

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US futures pointed to a 0.6% decline at the open as Europe’s Stoxx 600 fell by the same. After spiking on Tuesday, 10-year Treasury yields inched one basis point higher to 4.56%. Yields on similar-maturity UK bonds jumped while those on German debt pulled back from a six-month high after regional inflation slowed month-on-month. The dollar climbed for a second day.

Tepid demand for US note sales, resilient consumer confidence data and central bank talk are fueling expectations interest rates will stay elevated. Traders are watching an auction of seven-year Treasuries later Wednesday and important US price growth statistics are in focus at the end of the week.

“The higher-for-longer bond yields risk is biting into equity valuations and short-term pressure seems to be a given,” said Leonardo Pellandini, an equity strategist at Bank Julius Baer. “Nevertheless, with inflation expectations moderating and interest-rate cuts coming soon, we think markets can continue to climb higher.”

The Stoxx 600 is on track for a 2.2% gain the month, while the S&P 500 was up 5.4% as of Tuesday’s close. A big part of that rally is due to tech mega-caps and investors’ enthusiasm for artificial intelligence.

Hedge funds’ exposure to the so-called Magnificent Seven companies is at a record high since Nvidia Corp.’s estimate-beating earning last week, according to Goldman Sachs Group Inc.’s prime brokerage. The firms now account for about 20.7% of hedge funds’ total net exposure to US single stocks.

Fed’s Favorite

Friday sees the release of the Fed’s preferred inflation gauge — the personal consumption expenditures index. Economists expect the PCE deflator to have risen in April at an annual pace of 2.7%, the same as in March.

“One potential banana skin is that major downside surprises in inflation could now bring in the view that the US economy could not be in as strong shape as previously expected — i.e. ‘bad news is bad news’,” Geoffrey Yu, senior strategist at Bank of New York Mellon.

Fed Chair Jerome Powell and his colleagues have stressed the need for more evidence that inflation is on a sustained path to their 2% goal before cutting the benchmark interest rate.

Story continues

Fed’s Kashkari Says Interest-Rate Hikes Not Entirely Ruled Out

Brent crude advanced 0.8% to $84.88 per barrel as another attack in the Red Sea added to heightened geopolitical tensions in the Middle East ahead of an OPEC+ meeting on the weekend. West Texas Intermediate climbed above $80 a barrel.

Corporate Highlights:

• ConocoPhillips is in advanced talks to acquire smaller rival Marathon Oil Corp. which would extend the oil industry’s spree of major deals, the Financial Times reported. Marathon rose as much as 6.2% in premarket trading Wednesday, while Conoco edged lower.

• Anglo American Plc said it won’t give BHP Group any further time to commit to a takeover offer, signalling the likely end for now to a $49 billion pursuit by the world’s biggest mining company.

• The parent company of Royal Mail has agreed to a £3.6 billion ($4.6 billion) takeover by Czech billionaire Daniel Kretinsky, setting the scene for a political battle over the future ownership of Britain’s postal service.

• Lenovo Group Ltd. plans to sell $2 billion worth of zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund, part of a broader strategic pact with the tech-hungry kingdom.

Key events this week:

• Fed’s Beige Book, Wednesday

• Fed’s John Williams speaks, Wednesday

• Eurozone economic confidence, unemployment, consumer confidence, Thursday

• US initial jobless claims, GDP, wholesale inventories, Thursday

• Fed’s John Williams and Lorie Logan speak, Thursday

• Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday

• China official manufacturing and non-manufacturing PMI, Friday

• Eurozone CPI, Friday

• US consumer income, spending, PCE deflator, Friday

• Fed’s Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.6% as of 7:12 a.m. New York time

• Nasdaq 100 futures fell 0.6%

• Futures on the Dow Jones Industrial Average fell 0.6%

• The Stoxx Europe 600 fell 0.7%

• The MSCI World Index fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro fell 0.2% to $1.0840

• The British pound fell 0.2% to $1.2741

• The Japanese yen was little changed at 157.25 per dollar

Cryptocurrencies

• Bitcoin fell 0.7% to $67,777.9

• Ether fell 0.3% to $3,817.42

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.57%

• Germany’s 10-year yield advanced four basis points to 2.63%

• Britain’s 10-year yield advanced six basis points to…