Yields fall, stocks struggle as economic fears grow

NEW YORK, May 16 (Reuters) – U.S. stocks closed weakly on Monday as downbeat data from China and New York state raised fears of recession, but US yields 10-year Treasuries remaining firmly below 3% boosted hopes that the Federal Reserve will cautiously raise interest rates. hikes.

Retail and factory activity in China fell sharply in April as COVID-19 shutdowns severely disrupted supply chains while New York factory output fell in May for the third time this year amid a slump in new orders and shipments. Read more

Chinese data cast a shadow over the world’s second-largest economy, while a sharp drop in New York’s manufacturing industry could be an early signal of the impact of Fed plans to tighten monetary policy to combat the rise rapid inflation.

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The MSCI gauge of stocks across the world (.MIWD00000PUS) closed down 0.21% and Treasury yields fell, with the benchmark 10-year note down 4.7 basis points to 2.886% after having reached 3.2% a week ago. Some see the decline since then as a sign that the market has priced in all or most of the Fed’s expected rate hikes.

“The biggest thing happening in the market right now is the fact that the 10-year yield has remained below 3%,” said Tom Hayes, president and managing member of Great Hill Capital LLC.

Five Fed officials scheduled to speak on Tuesday are also key given the recent market slump, he said.

“Usually when you’re close to a bottom in the market and you have five Fed speakers, they’re usually not there to drive the market down,” Hayes said.

With earnings growth turning positive and a more reasonable price-to-earnings ratio, stocks are more attractive, he said.

The pan-European STOXX 600 index (.STOXX) ended flat, up 0.04%, with the German (.GDAXI) and French (.FCHI) indices down closing lower and Britain’s FTSE 100 (.FTSE) up on the day.

Emerging markets stocks (.MSCIEF) rose 0.30% and on Wall Street, the Dow Jones Industrial Average (.DJI) rose 0.08%, but the S&P 500 (.SPX) lost 0, 39% and the Nasdaq Composite (.IXIC) fell 1.2%.

China remains a problem, as does Europe, particularly Eastern Europe and Putin’s threats against Finnish and Swedish plans to join NATO, said Tim Ghriskey, senior strategist at Ingalls & Snyder.

“When you see big days, I’m not surprised to see some profit taking the next day,” Ghriskey said, referring to Friday’s rally on Wall Street. “We are just seeing a reaction to recent strength. There are various factors driving the market, but in general, none of them are very positive.”

Goldman Sachs raised its earnings-per-share growth forecast for 2022 to 8% from more than 5%, but cut its end-of-year target for the S&P 500 to 4,300 from 4,700 due to fears of interest rates. interest and growth.

Former Goldman CEO Lloyd Blankfein said on Sunday he believed the U.S. economy was at risk of entering a recession as the Fed continued to raise rates to fight rising inflation. Read more

The dollar fell slightly after hitting a 20-year high last week.

The dollar index fell 0.316%, with the euro up 0.18% at $1.0431 and the Japanese yen up 0.09% at 129.07 to the dollar.

The dollar is likely to strengthen due to the macroeconomic outlook, the fundamentals of which do not look good, said Bipan Rai, head of North American currency strategy at CIBC Capital Markets.

“From a risk perspective, this should still support the dollar against most currencies,” Rai said.

But the dollar is consolidating after its recent strength and could see more range-bound trading sessions, he said.

The euro was near its lowest since 2017. European Central Bank policy chief Francois Villeroy de Galhau said the weak euro could threaten the central bank’s efforts to steer inflation toward its target. goal. Read more

Gold edged higher as falling Treasury yields offset headwinds from a relatively firm dollar which, along with the prospect of interest rate hikes, had pushed bullion to a low of more than 3 month and a half.

US gold futures rose 0.3% to $1,814 an ounce.

Oil rose as the European Union edged closer to a ban on Russian crude imports and traders saw signs the COVID-19 pandemic was receding in China’s hardest-hit regions, suggesting that a significant recovery in demand was underway.

U.S. crude futures settled $3.71 at $114.20 a barrel, while Brent rose $2.69 to settle at $114.24 a barrel.

Bitcoin last fell 5.21% to $29,664.88.

Yields on European government bonds rose, with Germany’s 10-year yield down 0.9 basis points to 0.943% – below the roughly eight-year high of 1.19% that he reached last Monday.

The ECB will likely decide at its next meeting whether to end its stimulus program in July and raise interest rates “very soon” thereafter, ECB policy chief Pablo Hernandez de Cos said on Saturday. Read more

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Reporting by Herbert Lash; additional reporting by Elizabeth Howcroft in London; edited by Ed Osmond, Chizu Nomiyama, Jonathan Oatis and Richard Chang

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