Two of three major Wall Street stock indexes declined on Wednesday, while Treasury yields marched higher, as new inflation indicators from China, Germany and the U.S. hardened expectations that high interest rates would be in force longer than expected. The TSX ended with a slight gain.
The yield on U.S. 10-year notes topped 4% for the first time since November, reaching a high of 4.006%, after the Institute for Supply Management’s (ISM) survey showed U.S. manufacturing contracted in February and prices for raw materials increased last month.
After the data was released, the two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, gained on the day after reaching 4.904%, its highest since 2007. Canadian bond yields also rose.
Earlier in the day, China’s official manufacturing purchasing managers’ index (PMI) rose to 52.6 last month, marking the fastest growth in more than a decade, from 50.1 in January.
And inflation data from Germany bolstered expectations that the European Central Bank will push interest rates higher than previously thought, a day after February numbers showed price pressures surged more than expected across France and Spain.
“Global PMI continues to point to a firmer global growth outlook - creating some upside risk to domestic activity and inflation,” Citi U.S. economic strategists said in a note on Wednesday.
The Dow Jones Industrial Average was virtually flat, closing up just 0.02%, while the S&P 500 lost 0.47% and the Nasdaq Composite dropped 0.66%. Helping to bolster the Dow, Caterpillar shares rose 3.81% after the construction equipment maker said it had reached a tentative deal with a union that represents workers at four of its facilities.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 38.59 points, or 0.2%, at 20,259.78, after a rough February for global equity markets in which the TSX lost 2.6%.
The upbeat factory data in commodity-hungry China was good news for the TSX, which has a 30% weighting in resource shares.
Canadian domestic data was also upbeat, showing that manufacturing activity expanded at its fastest pace in seven months.
The Toronto market’s energy and materials sectors both gained 2.1%, as oil settled 0.8% higher at $77.69 a barrel, while gold and copper prices also climbed.
National Bank of Canada shares added 1.6% after the bank reported first-quarter profits ahead of expectations. In contrast, the shares of Royal Bank of Canada the country’s biggest lender, were down 3.6%.
Shares of Sleep Country were also a drag, falling 7.7% to its lowest closing level since Jan. 6.
The next flush of global economic indicators is likely to be crucial as markets assess whether future rate hikes are sufficiently priced in.
Atlanta Federal Reserve President Raphael Bostic on Wednesday kept his view that the central bank’s policy rate can stop in the 5.00%-5.25% range.
Minneapolis Fed President Neel Kashkari also said he was “open-minded” on either a 25 or 50 basis point rate hike at the Fed’s next meeting on March 21-22, adding that rates might ultimately need to go above the 5.4% level he had thought in December would be adequate.
Geopolitics also added background anxiety.
Last week’s visit to Kyiv by U.S. President Joe Biden and Russian President Vladimir Putin’s abandonment of the last remaining nuclear arms control treaty with the U.S. signaled a hardening of positions.
China, which showed support for Russia by sending its top diplomat to Moscow last week, has issued a call for peace, though it has been met with skepticism and Washington has expressed concern in recent days that China could send arms to Russia.
“Should Beijing send Russia arms, it risks a rapid geopolitical breaking of the world economy,” said Rabobank’s research head, Jan Lambregts. “Markets have not even begun to contemplate what this might mean.”
Among other U.S. stock moves, Novavax Inc plunged 25.92% after the COVID-19 vaccine maker raised doubts about its ability to remain in business and announced plans to slash spending as it prepares for a fall vaccination campaign.
Volume on U.S. exchanges was 11.00 billion shares, compared with the 11.39 billion average for the full session over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 1.32-to-1 ratio; on Nasdaq, a 1.29-to-1 ratio favored decliners. The S&P 500 posted 9 new 52-week highs and 13 new lows; the Nasdaq Composite recorded 79 new highs and 114 new lows.
Reuters, Globe staff
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