By Chuck Mikolajczak
NEW YORK (Reuters) -A gauge of global stocks was on track for a second straight decline and U.S. Treasury yields fell on Tuesday, as investors attempted to assess the policy path of major central banks as economic growth slows.
Softening economic data and recent comments from Fed officials, including Chair Jerome Powell, have heightened expectations that the U.S. central bank has ended its interest rate hiking cycle and will begin to cut rates as soon as March.
In addition, expectations have grown that the European Central Bank (ECB) could cut rates in the first quarter of 2024.
Expectations for a U.S. rate cut of at least 25 basis points (bps) in March are about 64%, according to CME’s FedWatch Tool, up from about 35% a week ago. Markets are pricing in a 77% chance of a cut by the ECB in March, according to LSEG data.
“The market is comfortable with the idea that the economy is slowing, consumption’s facing headwinds, but they don’t know how much it’s going to slow,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.
“That’s why people are willing to price in a bit of a wild card potential for a Q1 rate cut – because the slowing might be more than expected.”
The Dow Jones Industrial Average fell 109.98 points, or 0.30%, to 36,094.46; the S&P 500 lost 3.44 points, or 0.07%, to 4,566.34; and the Nasdaq Composite gained 37.84 points, or 0.27 %, to 14,223.33.
Investors got their first look at what will be a string of data on the labor market this week in the form of the Job Openings and Labor Turnover Survey, or JOLTS report, and will culminate in the government’s payrolls report on Friday, which will heavily influence market views on the Fed’s policy steps.
U.S. job openings dropped in October to the lowest level since early 2021, indicating that the labor market was easing as higher interest rates cool demand in the economy.
Other data indicated the U.S. services sector picked up steam in November as business activity increased, although new orders were flat and a gauge of input inflation slipped.
U.S. Treasury yields fell, with the benchmark 10-year Treasury note touching its lowest level since Sept. 1 at 4.163% and was last down 10 basis points to 4.188%.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, fell 5 basis points to 4.608% on the day.
European shares edged higher, led by gains in real estate stocks, with the STOXX 600 index up 0.27%. MSCI’s gauge of stocks across the globe was down 0.17%.
ECB board member Isabel Schnabel, seen as the most influential voice in the conservative camp of policymakers, told Reuters the ECB can take further interest rate hikes off the table given a “remarkable” fall in inflation and policymakers should not guide for rates to remain steady through mid-2024.
The dollar index was up at 0.17% at 103.81, while the euro was down 0.1% on the day at $1.082.
In commodity trading, U.S. crude bounced up 1.2% to $73.92 a barrel and Brent crude rose to $78.87 per barrel after Russia said OPEC+ was ready to deepen output cuts in the first quarter of next year.
(Reporting by Chuck Mikolajczak Additional reporting by Karen BrettellEditing by Mark Potter)
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