U.S. stocks closed lower while bonds held gains as investors braced for a key inflation report that could provide clues on the direction of monetary policy.
The S&P 500 ended the session with a 0.2 per cent decline after earlier climbing above its May 7 record closing level. Large banks were among the biggest drags on the index, offset in part by megcap technology and biotech stocks. The 10-year Treasury yield fell below 1.5 per cent after an auction of the notes.
Equities have been trading in a tight range and Treasury yields have been easing in recent weeks as investors who believe accelerating inflation will be short-lived clash with those those who bet it will prove persistent enough to warrant tightening. For now, the Fed’s dovish stance is calming the markets.
“Even if inflation comes out a little higher than Street expectations tomorrow, the Fed isn’t going to change its path,” said Esty Dwek, head of global market strategy at Natixis Investment Managers, said in a Bloomberg TV interview. “There’s a lot of wait-and-see going on and really just thinking it would take a lot to really surprise markets.”
Seven of the main 11 S&P 500 industry groups declined, with financials underperforming and health-care stocks rising the most. JPMorgan Chase & Co. and Bank of America Corp. each dropped 1.3 per cent. United Parcel Service Inc. tumbled the most in seven months after its profit-margin outlook disappointed investors. Biogen Inc. resumed a rally two days after getting regulatory approval for its Alzheimer’s drug. Johnson & Johnson Co., Merck & Co. Inc., Pfizer Inc. and Eli Lily & Co. were also standout gainers on Wednesday.
The 10-year U.S. Treasury yield declined as much as 6.3 basis points to 1.471 per cent. The yield held below 1.5 per cent after an auction of US$38 billion of the notes Wednesday afternoon. The 30-year bond’s yield touched 2.148 per cent, last seen March 1.
Meanwhile, a rally in commodities has stalled with global recovery remaining patchy, especially with the pandemic still spreading in the developing world. The Bloomberg Commodity Index, which shows returns on a basket of raw materials, was little changed.
Shares edged up in China, where a measure of producer prices for May was at the highest since 2008 but consumer-price gains remained subdued. The nation is also considering imposing a cap on the price of thermal coal to contain high energy costs.
The Stoxx 600 Europe Index increased 0.1 per cent, closing at a record high as investors awaited key economic data and the European Central Bank policy meeting on Thursday for signs of whether the recovery is becoming overheated.
Here are key events to watch this week:
- U.S. consumer price index on Thursday.
- Apple holds its annual Worldwide Developers Conference through June 11.
- European Central Bank decision on Thursday and press conference with President Christine Lagarde.
- Iran nuclear deal talks reconvene in Vienna Thursday.
- Group of Seven leaders’ summit starts in Cornwall, England Friday.
These are some of the main moves in markets:
Stocks
- The S&P 500 fell 0.2 per cent as of 4:04 p.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average fell 0.4 per cent
- The MSCI World index fell 0.2 per cent
Currencies
- The Bloomberg Dollar Spot Index rose 0.1 per cent
- The euro was little changed at US$1.2176
- The British pound fell 0.3 per cent to US$1.4111
- The Japanese yen fell 0.1 per cent to 109.63 per dollar
Bonds
- The yield on 10-year Treasuries declined five basis points to 1.49 per cent
- Germany’s 10-year yield declined two basis points to -0.24 per cent
- Britain’s 10-year yield declined four basis points to 0.73 per cent
Commodities
- West Texas Intermediate crude fell 0.5 per cent to US$70 a barrel
- Gold futures fell 0.2 per cent to US$1,892 an ounce
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