By Chuck Mikolajczak
NEW YORK (Reuters) -A gauge of global stocks fell on Wednesday after two straight days of gains as investors gauged the latest earnings reports, while the 10-year U.S. Treasury yield hit its highest level in a month after British inflation data and expectations for a Federal Reserve interest rate hike in May remained elevated.
U.S. stocks were lower on Wall Street in early trading, weighed down by a 3.19% drop in Netflix after the streaming video company reported quarterly results, while Tesla dipped 1.50% after the electric vehicle maker cut prices for the sixth time this year.
The Dow Jones Industrial Average fell 99.86 points, or 0.29%, to 33,876.77; the S&P 500 lost 10.11 points, or 0.24%, to 4,144.76; and the Nasdaq Composite dropped 37.18 points, or 0.31%, to 12,116.24.
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 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.
“It does seem like inflation remains the key concern and until that is fully addressed, you are not going to see the snapback in rates lower on the other side,” said Jim Gubitosi, co-chief investment officer at Income Research + Management in Boston.
“We’ve seen a tremendous amount of rate volatility, especially in the front end, tremendous swings in those rates and the market continues to be volatile around those expectations but if you look at what the Fed is saying, it’s clearly pointing towards more rate stability with rates higher kind of longer-term.”
The yield on 10-year Treasury notes was up 5.5 basis points to 3.627% after reaching 3.639. its highest since March 15.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 6.6 basis points at 4.265%.
The rise in rates also served to weigh on equities, as the STOXX 600 slipped from a 14-month high while Britain’s FTSE 100 was off 0.16% after the inflation data.
The pan-European STOXX 600 index lost 0.11% and MSCI’s gauge of stocks across the globe shed 0.34%.
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 0.177%, with the euro down 0.15% to $1.0955.
The Japanese yen weakened 0.38% versus the greenback at 134.62 per dollar, while Sterling was last trading at $1.2439, up 0.12% on the day.
The dollar strength, in turn, helped curb crude prices, along with concerns the Fed rate hikes could dent growth and drag demand.
U.S. crude recently fell 1.47% to $79.67 per barrel and Brent was at $83.60, down 1.38% on the day.
(Reporting by Chuck Mikolajczak; editing by Jonathan Oatis)
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