By Chuck Mikolajczak
NEW YORK (Reuters) – A gauge of global stocks slipped on Wednesday after back-to-back gains as investors digested the latest earnings reports, while Treasury yields climbed as British inflation data solidified expectations of more interest rate rises by central banks.
U.S. stocks closed little changed, with the S&P 500 slightly below the unchanged mark, with the tone defensive as utilities were the best performing sector.
Also capping gains was a 3.17% drop in Netflix after the streaming video company reported quarterly results, while Tesla slipped 2.02% after the electric vehicle maker cut prices for the sixth time this year, with its earnings due after the closing bell.
The Dow Jones Industrial Average fell 79.62 points, or 0.23%, to 33,897.01; the S&P 500 lost 0.35 points, or 0.01%, to 4,154.52 and the Nasdaq Composite added 3.81 points, or 0.03%, to 12,157.23.
Expectations for more hikes from central banks pushed yields higher after Britain reported a slight decline in inflation in March, but remained the only country in western Europe in double-digits. Euro zone inflation also eased, but underlying readings remained stubbornly high, Eurostat said.
The two-year gilt yield was down 0.2 basis points at 3.820% after hitting 3.840% its highest since March 9.
The data solidifies expectations for more hikes from the Bank of England and European Central Bank (ECB), while market participants have largely priced in a 25-basis-point rate hike from the U.S. Federal Reserve at its May meeting, according to CME’s FedWatch Tool.
“Rates are climbing higher which is acting as a headwind for stocks,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.
“The tone is changing, because we have kind of walked away, or skirted, what most investors feared – we were going to have a banking crisis 2.0 – and what they are coming back around to is the Fed is going to raise rates in May and they are likely to leave them higher for longer.”
The yield on 10-year Treasury notes was up 2.5 basis points to 3.597% after reaching 3.639%, its highest since March 22.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 6.2 basis points at 4.261%.
The rise in rates served to weigh on equities, as the STOXX 600 slipped from a 14-month high while Britain’s FTSE 100 closed off 0.13% after the inflation data.
The pan-European STOXX 600 index closed down 0.10% and MSCI’s gauge of stocks across the globe shed 0.23%.
A host of Fed speakers are scheduled to give commentary over the rest of the week, before the officials enter a blackout period on April 22 ahead of the central bank’s May 2-3 meeting.
The dollar also firmed on Fed hike expectations, showing signs of stabilizing after five straight weeks of declines.
The dollar index rose 0.256%, with the euro down 0.19% to $1.095.
The Japanese yen weakened 0.52% versus the greenback at 134.81 per dollar, while sterling was last trading at $1.2436, up 0.10% on the day.
The dollar strength, in turn, helped curb crude prices, along with concerns that the Fed rate hikes could dent growth and create a drag on demand.
U.S. crude settled down 2.10% at $79.16 per barrel and Brent was at $83.12, down 1.95% on the day.
(Reporting by Chuck Mikolajczak; editing by Jonathan Oatis and Marguerita Choy)
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