The yield on the benchmark U.S. 10-year Treasury note hit its highest in about seven years on Tuesday on the heels of a report that indicated a pick-up in consumer spending, lifting the dollar to its strongest level this year and weighing on stocks.
The 10-year yield neared 3.1 per cent, blowing through the 3-per-cent level, as a wave of selling propelled the yield through a key technical support.
Wall Street’s main indexes slumped, with the Dow industrials snapping an eight-session streak of gains, hurt by concerns that rising bond yields would undercut stock valuations. The dollar’s rise also helped send gold to its low point for the year.
The Dow Jones Industrial Average fell 193 points, or 0.78 per cent, to 24,706.41, the S&P 500 lost 18.68 points, or 0.68 per cent, to 2,711.45 and the Nasdaq Composite dropped 59.69 points, or 0.81 per cent, to 7,351.63.
Investors remain preoccupied by the run-up to high-level talks between China and the United States set to commence this week in Washington. U.S. ambassador to China Terry Branstad said the two countries remain “very far apart” regarding a tariff resolution, after which White House economic adviser Larry Kudlow told Politico he supports efforts to reach an agreement.
“In general terms, we have a trade skirmish not a trade war,” said Anthony Chan, Chase Chief Economist JP Morgan in New York. “Longer term, we believe these trade issues will be resolved but on a day-to-day basis they lead to some consternation from investors.”
U.S. retail sales increased at a moderate 0.3 per cent in April as rising gasoline prices took a bite out of discretionary spending, according to the U.S. Commerce Department.
But core retail sales - which exclude gasoline, automobiles, building materials and food services - rose at a brisker 0.4-per -ent monthly pace over March, suggesting consumer spending is accelerating after its first quarter slowdown.
The yield on 10-year U.S. Treasury notes rose to its highest level since July 2011 on the news, raising expectations for further rate hikes from the Federal Reserve.
“It really tells you that there’s no justification at all for the Federal Reserve to slow down the growth pace, which tells you that maybe this hiking thing and long term yields is real,” Mr. Chan said.
Canada’s main stock index reversed course to edge higher on Tuesday, as gains in industrial stocks led by Air Canada more than offset a drop in miners due to declining gold prices.
The Toronto Stock Exchange’s S&P/TSX composite index rose 12.20 points, or 0.08 per cent, to 16,097.81.
Air Canada rose 4.4 per cent after JP Morgan upgraded the stock to “overweight” from “neutral.”
The materials sector, which includes precious and base metals miners, lost 0.6 per cent as gold futures and copper prices dropped.
The biggest drags on the sector were Kinross Gold Corp., which fell 2.5 per cent, and Barrick Gold Corp., which dropped 1.9 per cent.
The Canadian dollar hit a near one-week low against its U.S. counterpart as the greenback broadly rose and investors weighed prospects of a deadline being met for a new North American Free Trade Agreement between Canada, the United States and Mexico.
Mexico’s economy minister said he saw diminishing chances for a new NAFTA ahead of a May 17 deadline to present a deal that could be signed by the current U.S. Congress.
The pan-European FTSEurofirst 300 index rose 0.14 per cent.
MSCI’s gauge of stocks across the globe shed 0.86 per cent amid weak economic data from Germany and China.
Oil prices ended a shade firmer after retreating from multi-year highs hit early in the day on Tuesday, supported by concerns that U.S. sanctions on Iran are likely to restrict crude exports from one of the biggest producers in the Middle East.
Brent crude oil settled at $78.43 a barrel, up 20 cents, or 0.3 per cent, after reaching an intraday peak of $79.47 a barrel, up $1.24 and its highest since November 2014.
U.S. light crude closed 35 cents, or 0.5 per cent, higher at $71.31 a barrel, also not far off the day’s peak at $71.92, its highest since November 2014.
The difference between the two benchmarks briefly widened to more than $8 a barrel, the widest gap since April 2015, reflecting surging U.S. crude supplies and a greater geopolitical risk to Brent-based crudes.
“U.S. oil prices have flip-flopped on a strong dollar,” said Phil Flynn, analyst at Price Futures Group in Chicago. “Brent is pricing in the idea that all the risk to supplies is overseas - there’s a concern that all the supplies that are tight in Europe are only going to get tighter.”
Reuters