Renewed Interest Rate Uncertainty May Weigh On Wall Street

The major U.S. index futures are currently pointing to early weakness on Tuesday, with stocks likely to see further downside after turning lower over the course of the previous session.

Renewed uncertainty about the outlook for interest rates may weigh on the markets as traders digest recent U.S. economic data.

Last Friday’s closely watched inflation data combined with Monday’s stronger than expected manufacturing data have raised questions about whether the Federal Reserve will lower rates in June.

Treasury yields moved sharply higher in reaction to the data on Monday and are seeing further upside this morning, with the yield on the benchmark ten-year note reaching a four-month high.

While CME Group’s FedWatch Tool is currently still indicating 56.8 percent chance the Fed will cut rates by a quarter point in June, that is down from 63.8 percent a week ago.

After failing to sustain an early move to the upside, stocks moved mostly lower over the course of the trading day on Monday. The Dow and the S&P 500 gave back ground after ending last Thursday’s trading at record closing highs, while the tech-heavy Nasdaq managed to end the day in positive territory.

While the Nasdaq inched up 17.37 points or 0.1 percent to 16,396.83, the Dow slid 240.52 points or 0.6 percent to 39,566.85 and the S&P 500 dipped 10.58 points or 0.2 percent to 5,243.77.

The early strength on Wall Street came as traders finally had an opportunity to react to last Friday’s closely watched U.S. consumer price inflation data, which largely came in line with expectations.

The Commerce Department report said the annual rate of consumer price growth ticked up to 2.5 percent in February from 2.4 percent in January, in line with estimates.

Meanwhile, the annual rate of growth by core consumer prices, which exclude food and energy prices, slowed to 2.8 percent in February from an upwardly revised 2.9 percent in January.

Economists had expected the pace of core price growth to come in unchanged compared to the 2.8 percent originally reported for the previous month.

The readings on inflation, which are said to be preferred by the Federal Reserve, were included in the Commerce Department’s report on personal income and spending in February.

Buying interest remained somewhat subdued, however, as traders expressed uncertainty about whether inflation is slowing quickly enough to guarantee the interest rate cuts expected by the Fed.

The subsequent pullback by stocks came as a report from the Institute for Supply Management unexpectedly showing modest growth in U.S. manufacturing activity in the month of March contributed to a jump by Treasury yields.

The ISM said its manufacturing PMI jumped to 50.3 in March from 47.8 in February, with a reading above 50 indicating growth in the sector. Economists had expected the index to inch up to 48.4.

With the much bigger than expected increase, the index returned to expansion territory for the first time since September 2022.

The ISM said the prices index also jumped to 55.8 in March from 52.5 in February, as commodity driven costs remain unstable.

Airline stocks came under considerable selling pressure over the course of the session, resulting in a 1.9 percent slump by the NYSE Arca Airline Index. The index gave back ground after ending last Thursday’s trading at a three-month closing high.

Significant weakness was also visible among interest rate-sensitive commercial real estate stocks, as reflected by the 1.8 percent loss posted by the Dow Jones U.S. Real Estate Index.

Interest rate-sensitive housing and telecom stocks also saw notable weakness on the day, dragging both the Philadelphia Housing Sector Index and the NYSE Arca North American Telecom Index down by 1.4 percent.

Banking, pharmaceutical and brokerage stocks also moved lower, while gold, computer hardware and semiconductor stocks moved to the upside.

Among semiconductor stocks, Micron Technology (MU) surged by 5.5 percent after Bank of America raised its price target on the company’s stock to $144 per share from $120 per share.

Commodity, Currency Markets

Crude oil futures are surging $1.23 to $84.94 a barrel after climbing $0.54 to $83.71 a barrel on Monday. Meanwhile, after advancing $18.70 to $2,257.10 an ounce in the previous session, gold futures are jumping $19.60 to $2,276.70 an ounce.

On the currency front, the U.S. dollar is trading at 151.64 yen compared to the 151.65 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0745 compared to yesterday’s $1.0743.

Asia

Asian stocks ended mixed on Tuesday, as many regional markets resumed trading after a long holiday weekend.

A stronger dollar and higher Treasury yields weighed on sentiment as strong U.S. manufacturing data stirred fresh worries over the timing of interest rate cuts by the Federal Reserve.

Gold scaled a record high, while oil prices rose over 1 percent in Asian trading on heightened geopolitical tensions and indications of potential demand improvement in China and the United States, the two largest oil-consuming nations in the world.

Chinese shares ended on a flat note after a choppy session. The benchmark Shanghai Composite Index finished marginally lower at 3,074.96.

Hong Kong’s Hang Seng Index rallied 2.4 percent to 16,931.52 as traders returned from a two-session holiday break.

Xiaomi Corp. surged 9 percent following its debut electric vehicle. Country Garden Holdings shares were suspended days after the debt-ridden property developer postponed the release of its 2023 results.

Japanese markets ended on a muted note as the risk of currency intervention by Japanese authorities lingered and doubts emerged about the timing of Federal Reserve rate cuts.

Japanese Finance Minister Shunichi Suzuki offered some verbal intervention today, warning against excessive currency market volatility.

The Nikkei 225 Index closed marginally higher at 39,838.91 after briefly surpassing 40,000 earlier. The broader Topix Index settled 0.3 percent lower at 2,714.45.

Chip-making equipment giant Tokyo Electron added to recent gains, jumping 3.4 percent to 39,610 yen. Sumco Corp., which produces silicon used for semiconductor manufacturers, surged 4.4 percent.

Seoul stocks eked out modest gains as data showed headline inflation in the country topped 3 percent for a second consecutive month in March. The Kospi inched up 0.2 percent to 2,753.16.

Australian and New Zealand markets ended on a subdued note as regional bond yields climbed, echoing moves in U.S. Treasuries.

Australia’s benchmark S&P ASX 200 Index slipped 0.1 percent to 7,887.90 after repots the country’s central bank will switch to a new system for the implementation of monetary policy.

The broader All Ordinaries Index finished marginally lower at 8,145.80 after the release of RBA meeting minutes and weak manufacturing data.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index ended little changed with a negative bias at 12,095.85.

Europe

European stocks are turning in a mixed performance on Tuesday as traders weigh strong U.S. manufacturing data again a survey showing the Eurozone factory downturn deepened again in March.

Inflation fell in six economically important German states in March, preliminary data showed ahead of key German inflation figures due later in the day.

Elsewhere, British manufacturers reported their first overall increase in activity in 20 months in March on the back of recovering demand in their home market.

While the U.K.’s FTSE 100 Index is up by 0.2 percent, the French CAC 40 Index and the German DAX Index are both down by 0.2 percent.

Rheinmetall AG, a German automotive and arms maker, has moved notably higher after receiving a contract order worth 135 million euros from KNDS Germany.

BP Plc and peer Shell have also jumped as U.S. crude futures hit $85 a barrel in New York for the first time since October amid growing geopolitical risks and signs of improving demand in the U.S. and China.

Origin Enterprises has also risen as the international agri-services group announced the appointment of Colm Purcell as chief financial officer (CFO).

CTS Eventim AG, a German provider of ticketing services and live entertainment, has edged higher after it signed a put option deal with French media and entertainment firm Vivendi SA on the sale of Vivendi’s festival and See Tickets’ international ticketing activities.

Meanwhile, Persimmon, Taylor Wimpey and Barratt Developments have fallen after data showed U.K. house prices unexpectedly declined in March as a result of higher interest rates.

The Nationwide Building Society’s house price index posted a monthly fall of 0.2 percent in March, in contrast to the 0.7 percent rise in February and confounding the forecast of 0.3 percent gain.

U.S. Economic Reports

The Commerce Department is scheduled to release its report on new orders for manufactured goods in the month of February at 10 am ET. Factory orders are expected to increase by 1.0 percent in February after tumbling by 3.6 percent in January.

Also at 10 am ET, the Labor Department is due to release its report on job openings in the month of February. Job openings are expected to dip to 8.74 million in February from 8.86 million in January.

Federal Reserve Board Governor Michelle Bowman is scheduled to speak virtually on “Bank Mergers and Acquisitions, and De Novo Bank Formation: Implications for the Future of the Banking System” before a Workshop on the Future of Banking at 10:10 am ET.

At 12 pm ET, New York Federal Reserve President John Williams is due to moderate a discussion before the Economic Club of New York.

Cleveland Federal Reserve President Loretta Mester is scheduled to speak on the economic outlook before the Cleveland Association for Business Economics and Team NEO Luncheon at 12:05 pm ET.

At 1:30 pm ET, San Francisco Federal Reserve President Mary Daly is due to participate in a hybrid fireside chat in partnership with the Henderson Chamber of Commerce, Latin Chamber of Commerce Nevada, and Vegas Chamber of Commerce.