US stocks slip as yields rise, Fed takes notice

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  • Fed looms over broader markets, dollar rises
  • Oil falls on demand worries, US rail strike averted
  • Treasury yields rise when oil and gold fall

NEW YORK, Sept 15 (Reuters) – Wall Street indexes were firmly in the red during Thursday’s session after a lackluster start, while bond yields rose as investors digested economic data.

Oil futures fell more than 3% on demand concerns and a tentative deal to avert a US rail strike, as well as continued US dollar strength on expectations of a big US rate hike. read more

U.S. retail sales unexpectedly rebounded in August as Americans took advantage of lower gasoline prices, increased motor vehicle purchases and ate more food, economic data showed. But the data for July was revised downwards, instead of showing a decline in retail sales, as previously reported.

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Separately, the Labor Department said initial claims for state unemployment benefits fell to the lowest level since late May in the week ended Sept. 10. read more

Investors are widely expecting a serious rate hike after next week’s Federal Open Market Committee (FOMC) meeting, but are nervously awaiting Fed Chair Jerome Powell’s cues on future policy moves, said Quincy Krosby, chief global strategist at LPL Financial.

“The market remains active knowing that the Fed meeting is next week. While participants agree that a 75 basis point hike is likely, they are worried about the previous commentary and what Chairman Powell said in his press conference,” Crosby said.

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Dow Jones Industrial Average (.DJI) 173.07 points or 0.56% down to 30,962.02; S&P 500 (.SPX) The Nasdaq Composite lost 44.69 points, or 1.13%, to 3,901.32. (.IXIC) 167.32 points or 1.43% down at 11,552.36.

MSCI’s measure of stocks around the world (.MIWD00000PUS) Emerging market stocks fell 0.96% during the period (.MSCIEF) 0.57% lost.

Stocks, bonds and currencies showed the market on Thursday “there is a growing sense that the Fed is going to hike more aggressively next week,” said Scott Lautner, chief investment officer at Horizon Investments in Charlotte, North Carolina.

Noting the still-strong labor market in particular, Lautner said “the economic numbers released today put a bow on the situation.”

Treasury yields hit new 15-year highs in two years, after data on retail sales and jobless claims showed a resilient economy, giving the central bank enough room to raise interest rates aggressively.

The spread between the 2-year and 10-year Treasury yields widened further to -41.4 basis points, compared to -13.0 bps a week ago.

Benchmark 10-year notes rose 4.5 basis points to 3.457% from 3.412% late on Wednesday. The 30-year bond fell in price 5/32 from 3.469% to yield 3.4779%. The 2-year note last fell in price on 5/32 to yield 3.8646% from 3.782%.

“In this vicious cycle, the data will continue to be resilient, indicating a central bank that will certainly continue and continue to tighten policy,” said Subatra Rajappa, head of US rates strategy at Societe Generale in New York.

Also dampening investor sentiment on Thursday was the World Bank’s assessment that the world could be headed for a global recession as central banks around the world simultaneously raise interest rates to combat stagnant inflation. read more

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Among currencies the dollar was slightly higher against the yen, while the Swiss franc hit its strongest level against the euro since 2015. read more

The dollar index, which measures the greenback against a basket of major currencies, rose 0.091%, while the euro rose 0.18% to $0.9995.

The Japanese yen weakened 0.19% against the greenback at 143.44 per dollar, while sterling last traded at $1.1469, down 0.57% on the day.

Fears of a U.S. railroad worker strike, ahead of a tentative labor agreement, supported oil prices on Wednesday amid supply concerns. In addition, the International Energy Agency (IEA) said this week that oil demand growth will stop in the fourth quarter.

US crude was down 3.82% at $85.10 a barrel, while Brent was down 3.46% at $90.84.

Gold fell to its lowest level since April 2021, hit by lower U.S. Treasury yields and a firmer dollar, as bets on another huge central bank rate hike eroded the bullion’s appeal.

Spot gold was down 1.9% at $1,664.46 an ounce. US gold futures were down 2.02% at $1,662.30 an ounce.

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Additional reporting by Herbert Lash in New York, Mark Jones in London, Stefano Repado in Milan, Tom Westbrook in Singapore and Wayne Cole in Sydney; Editing by Kirsten Donovan and Jonathan Otis

Our Standards: Thomson Reuters Trust Principles.

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