(Bloomberg) — A decline in bonds led stocks lower as another weak sell-off in Treasuries raised concerns that financing the U.S. deficit could push yields higher at a time when the Federal Reserve is not in a hurry to reduce rates.
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The United States sold $44 billion worth of seven-year notes at a yield of 4.650%, above the pre-auction level of 4.637%. That’s just a day after two other offerings totaling $139 billion saw lackluster demand. These bond sales are exerting growing influence across several asset classes, underscoring how uncertainties over monetary policy continue to weigh on markets while inflation shows few signs of moderation.
US REACTS: Beige Book Shows Slow Progress Toward Fed Target
“The current setup is quickly becoming a concern,” said Matt Maley of Miller Tabak + Co. “Not only are yields rising again in the United States, but they are also rising in other parts of the world. good news for a stock market that trades at 22 times forward earnings.”
All major groups in the S&P 500 fell as the indicator closed at 5,266.95. In late trading, Salesforce Inc. sank as a bearish sales outlook fueled fears of a slowdown at the software giant. HP Inc. reported revenue that beat estimates, including the first increase in PC sales in two years.
Yields on the 10-year Treasury rose six basis points to 4.61%. European bonds also fell, sending yields to multi-month highs after inflation in Germany accelerated more than expected, dampening bets that the pace of rate cuts would accelerate. The dollar saw the biggest rise in a month.
“Bond yields could rise primarily because of bond supply and the continued massive deficit — not because of concerns about inflation or the strength of the economy,” said Eric Johnston of Cantor Fitzgerald.
Concerns about the U.S. deficit — combined with other factors — pushed long-term interest rates higher in early October, with the yield on the benchmark 30-year Treasury bond hitting a 16-year high.
Why the US deficit is a concern again and will remain so: QuickTake
The U.S. economy has grown at a “slight or modest” pace in most regions since early April and consumers have resisted rising prices, the Fed said in its Beige Book survey of regional trade contacts.
“Consumers are becoming more price conscious, which is likely putting pressure on profit margins,” said Jeff Roach of LPL Financial. “We should expect more discounts and incentives as some consumers struggle with persistently high prices. »
Fed Chairman Jerome Powell and his colleagues have stressed the need for more evidence that inflation is on a sustained path toward their 2% target before cutting the benchmark interest rate, which is at its highest level in two decades since July.
“We continue to think US sovereign yields are likely to end the year lower as inflation and economic growth slow and the Fed cuts rates in the final months of the year,” Solita Marcelli said. of UBS Global Wealth Management.
At the same time, the options market is betting that the S&P 500 will see moderate swings after this week’s bond auctions and the Fed’s preferred underlying inflation gauge on Friday, with traders instead awaiting next month on consumer prices and the next meeting of the central bank.
The stock benchmark is expected to move only 0.5% one way or the other based on the Personal Consumption Expenditure Price Index, based on the cost of puts and options. buy-at-the-money, according to Stuart Kaiser, head of U.S. equity trading at Citigroup Inc. strategy.
This figure is lower than the implied move on June 7 – the next jobs report – and the next CPI and Fed rate decision – both on June 12, which would be the most important before a central bank meeting since December, Kaiser said.
Bank of America Corp. customers were net sellers of U.S. stocks for the fourth straight week, having sold $2 billion worth of shares during the five-day period ended last Friday.
The outflows came primarily from hedge funds and retail investors, with institutions being net buyers, quantitative strategists led by Jill Carey Hall wrote.
Hedge fund exposure to U.S. tech giants hit record high after Nvidia Corp. reported earnings. last week, according to Goldman Sachs Group Inc.’s prime brokerage firm.
The so-called Magnificent Seven companies – Nvidia, Apple Inc., Amazon.com Inc., Meta Platforms Inc., Alphabet Inc., Tesla Inc. and Microsoft Corp. – now represent around 20.7% of hedge funds’ total net exposure. to U.S. single stocks, according to the report.
Company strengths:
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ConocoPhillips has agreed to acquire Marathon Oil Corp. in an all-stock transaction valuing the company at approximately $17 billion, continuing a major buying spree among the U.S. oil and gas industry’s biggest players.
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Exxon Mobil Corp. has pledged to be a “strong defender” of shareholder rights against activist investors the oil giant accuses of abusing the US proxy voting system.
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BHP Group has decided not to make a firm offer for Anglo American Plc, abandoning for now what would have been the biggest mining deal in more than a decade.
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Shares of Abercrombie & Fitch Co. jumped after the retailer beat first-quarter sales estimates, extending its rebound from the teen fashion graveyard.
Key events this week:
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Eurozone economic confidence, unemployment, consumer confidence, Thursday
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Initial jobless claims in the United States, GDP, Thursday
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Fed’s John Williams and Lorie Logan speak Thursday
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Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
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China’s official manufacturing and non-manufacturing PMI, Friday
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Eurozone CPI, Friday
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US consumer income, spending, PCE deflator, Friday
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Fed’s Raphael Bostic to speak Friday
Some of the main market movements:
Actions
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The S&P 500 fell 0.7% as of 4 p.m. New York time
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The Nasdaq 100 fell 0.7%
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The Dow Jones Industrial Average fell 1.1%
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The MSCI World index fell 1%
Currencies
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The Bloomberg Dollar Spot Index rose 0.5%
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The euro fell 0.5% to $1.0802
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The British pound fell 0.5% to $1.2702
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The Japanese yen fell 0.3% to 157.69 per dollar
Cryptocurrencies
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Bitcoin fell 1.5% to $67,212.04
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Ether fell 2.1% to $3,746.43
Obligations
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The 10-year Treasury yield rose six basis points to 4.61%
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The German 10-year yield rose 10 basis points to 2.69%
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The UK 10-year yield rose 12 basis points to 4.40%
Raw materials
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West Texas Intermediate crude fell 1% to $79.01 a barrel
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Spot gold fell 1% to $2,336.85 an ounce
This story was produced with the help of Bloomberg Automation.
–With help from Jessica Menton, Rob Verdonck, Winnie Hsu, Alex Nicholson, Farah Elbahrawy, Elizabeth Stanton, Edward Bolingbroke, Felice Maranz and Alexandra Semenova.
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