GLOBAL MARKETS-Wall Street pulls back on stocks, Treasury yields dip

"Although there is widespread criticism, it's too early to take the view that the Fed won't be able to negotiate the fine line of reducing inflation without derailing growth," said Mark Haefele, Chief Investment Officer, UBS Global Wealth Management. "Given a higher degree of uncertainty, rather than make a directional play on stocks moving higher, we prefer selected overweight and underweight positions, yielding an overall neutral allocation to equities." BOND SELL-OFF The most eye-catching moves recently have been in the bond market, although there was some reversal on Wednesday.

Wall Street took a breath on Wednesday, pushing stocks and Treasury yields down after both had powered higher earlier in the week as investors took in the strength of the economy and hawkish comments from U.S. policymakers.

Two-year U.S. Treasury yields have risen sharply so far in March and set for their biggest monthly jump since 2004. Investors have been relatively sanguine about the implications of higher yields on stock market valuations, with many choosing to buy back in after a bruising few months for equity prices. That narrative took a pause on Wednesday as U.S. stocks fell in morning trading. The Dow Jones Industrial Average fell 382.27 points, or 1.1%, to 34,425.19, the S&P 500 lost 40.23 points, or 0.89%, to 4,471.38 and the Nasdaq Composite dropped 101.17 points, or 0.72%, to 14,007.65.

European stocks fell about 1%, with a pan-European equity benchmark hitting a new 1-month high in early London trading before falling back as traders took profits. MSCI's broadest gauge of world stocks declined 0.5%, but kept near levels last seen in mid-February just before Russia invaded Ukraine.

Investors were still trying to make up their mind about interest rates and stocks. "Although there is widespread criticism, it's too early to take the view that the Fed won't be able to negotiate the fine line of reducing inflation without derailing growth," said Mark Haefele, Chief Investment Officer, UBS Global Wealth Management.

"Given a higher degree of uncertainty, rather than make a directional play on stocks moving higher, we prefer selected overweight and underweight positions, yielding an overall neutral allocation to equities." BOND SELL-OFF

The most eye-catching moves recently have been in the bond market, although there was some reversal on Wednesday. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 2.9 basis points at 2.125%. The yield on 10-year Treasury notes was down 4.5 basis points to 2.332%. The sell-off in short-dated yields prompted fed fund futures to price in an aggressive 190 bps of interest rate rises through the remainder of the year after a 25 bps rate hike last week. Futures were nearly pricing in the probability of a 50 bps hike in May.

The sharp rise in short-dated yields has flattened the gap between two and 10-year U.S. yields to its lowest levels since the coronavirus pandemic hit global markets in March 2020. An inverted yield curve is widely seen as a predictor of future U.S. recessions. JPMorgan market strategists wrote in a recent note that markets have rebounded recently because investors are "looking through the hawkish Fed and ominous signal" from the rates curve flattening.

"We believe this is warranted given strong economic fundamentals, our expectation the [2 year and 10 year Treasury] curve will stay positive this year, and moderating risks of large energy supply disruptions," they wrote. Currency market activity continued to be relatively subdued, confirming the lack of any clear directional trends.

Against the U.S. dollar, the yen was up slightly by 1700 GMT/1:00 pm ET, but held around 121 yen after Bank of Japan Governor Haruhiko Kuroda said it was premature to debate the exit from ultra-loose monetary policy. The euro and sterling both fell about 0.4% against a broadly stronger dollar.

Oil prices rose in volatile trading on Wednesday, supported by disruption of Russian and Kazakh crude exports. U.S. crude recently rose 4.63% to $114.33 per barrel and Brent was at $121.23, up 4.98% on the day. Gold prices also gained on Wednesday as investors looked to shield against soaring inflation and uncertainty caused by events in Ukraine, with elevated U.S. bonds yields capping gains in non-interest bearing metal. Spot gold added 0.7% to $1,935.25 an ounce.

 

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)