While you were sleeping: Treasuries, Wall St drop after US retail sales data

Wednesday 16th May 2018

US Treasuries dropped, as did Wall Street, as the latest retail sales data underpinned bets the Federal Reserve will hike its target interest rate at its June meeting and might have to step up the pace of interest rate increases.

Also weighing on sentiment was fresh concern about US trade talks as Mexico’s economy minister cast doubt that an agreement on a new North American Free Trade Agreement deal will be reached by the Thursday deadline cited by House Speaker Paul Ryan.

“It is not easy, we do not think we will have it by Thursday,” Mexican Economy Minister Ildefonso Guajardo told broadcaster Televisa, according to Reuters.

In 3.22pm trading in New York, the Dow Jones Industrial Average dropped 1 percent, while the Nasdaq Composite Index also slid 1 percent. In 3.07pm trading, the Standard & Poor’s 500 Index shed 0.9 percent.

US Treasuries sank, lifting yields on the ten-year note seven basis points to 3.07 percent. That’s the highest level in seven years, according to Bloomberg.

“Markets don’t know where to look, they don’t know where to focus,” Samantha Azzarello, global market strategist for JPMorgan ETFs, told Bloomberg. “It’s odd—rates are going up and we’re late cycle, and then volatility is back after volatility being so low, almost painfully low. And then I think clouds of uncertainty coming from Washington and geopolitics lays on top of all of it.”

A Commerce Department report showed US retail sales rose 0.3 percent in April, following an upwardly revised 0.8 percent increase in March.

"Although headline retail sales rose at a weaker pace in April, growth in underlying sales remained strong and past months’ gains were revised higher, which supports our view that the weakness in first-quarter consumption growth was temporary," Michael Pearce, senior US economist at Capital Economics, said in a note.

"Consumption growth is on track for a big rebound in the second quarter, which should push overall GDP growth up to more than 3 percent annualised,” Pearce noted. "That will keep the Fed on track to raise rates again at its June meeting."

Meanwhile, a New York Fed report showed its Empire State current business conditions index rose four points to a reading of 20.1 in May.

The Dow fell, led by declines in shares of Intel and those of Caterpillar, recently down 2 percent and 1.9 percent respectively. Meanwhile shares of Nike and those of Walt Disney rose, recently up 0.8 percent and 0.2 percent respectively, the only stocks in the Dow to post gains in late afternoon trading in New York.

In Europe, the Stoxx 600 Index ended the day with a 0.1 percent gain from the previous close. France’s CAC 40 Index rose 0.2 percent, as did the UK’s FTSE 100 Index.

However, Germany’s DAX index fell 0.1 percent. The latest data on the nation’s economic growth failed to meet expectations.

"It appears that with last year's global trade surge fading and the spectre of protectionism hanging over firms the German economy has passed its growth peak for now," said Oliver Rakau, chief German economist at Oxford Economics, according to CNN.

(BusinessDesk)

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