Wednesday, 23 May, 2018

Markets Right Now: Stocks are mostly lower; bond yields rise

E-mini S&P 500 Index Daily June E-mini S&P 500 Index
Ginger Lawrence | 16 May, 2018, 09:49

USA stocks dropped sharply on Tuesday after Home Depot reported quarterly sales that fell short of Wall Street's expectations and interest rates breached new highs.

That paves the way for higher borrowing costs on mortgages.

Banks bucked the downward trend Tuesday and rose along with bond yields.

"We're of the view that we're not in a high-rate environment, we're in a less-low rate environment", said Erik Davidson, chief investment officer at Wells Fargo Private Bank.

THE QUOTE: "There's a number of data releases that will grab traders' attention today and could determine whether we see an early rebound in stock markets". The S&P 500 index fell 18.69 points, or 0.7% to 2,711.44.

The Dow lost 193 points, or 0.8 percent, to 24,706. The Dow is on track for a gain of 2.2 percent, while the S&P 500 is closing in on a gain of 2.4 percent. The Nasdaq is up 4 percent.

ENERGY: Benchmark U.S. crude oil gave up 15 cents to $71.16 per barrel in electronic trading on the New York Mercantile Exchange.

The yield on the 10-year Treasury note-the most important single figure in the financial world-charged through the 3% threshold without blinking Tuesday morning, rising a full 0.07 percentage point to a four-year high of 3.06%. The retail sales data suggest consumers are spending more after a weak first quarter.

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The yield curve steepened from near its flattest levels since 2007, with the spread between the 2 year and 10 year bond yields widening 5bps to 50bps. The move raised expectations for further interest rate hikes from the Federal Reserve.

The market now prices a near 40% chance of an additional third hike this year by the Fed and sees the Fed funds rate above 2.75% at the end of 2019. Essex Property Trust fell 3.4 percent.

It also put investors in the mood to sell their shares in homebuilders. Higher mortgage rates can make it harder for would-be buyers to afford to purchase a home. MGM Resorts rose 1.6 percent.

Home Depot dropped 1.4 percent on weaker-than-expected sales, partly because of inclement weather. Chip maker Nvidia fell 3.8 percent; drug maker Celgene slid 3.9 percent. Brent crude, used to price global oil, added 20 cents to close at $78.43 a barrel in London.

CURRENCY: The dollar fell to 110.27 yen from 110.36 yen late Tuesday.

The greenback's gains weighed on precious metals prices. The Shanghai Composite index dropped 0.3 percent to 3,183.28 and shares in Southeast Asia were lower while Taiwan advanced. Britain's FTSE 100 added 0.2 percent. Australia's S&P/ASX 200 lost 0.6 percent. In Japan, the Topix index was off 0.2%.

NORTH KOREA: North Korea canceled a high-level meeting with South Korea, threatening to scrap a historic summit next month between President Donald Trump and North Korean leader Kim Jong Un over military exercises between Seoul and Washington that Pyongyang has long claimed are rehearsals for invasion. Hong Kong's Hang Seng fell 0.8%.