Stocks, US yields fall as investors gauge economic health

By Chuck Mikolajczak

NEW YORK (Reuters) – A gauge of global stocks declined for a second straight session and U.S. Treasury yields fell on Tuesday, as investors attempted to assess the policy path of major central banks and the trajectory of slowing economic growth.

Softening economic data and recent comments from Federal Reserve 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 74% chance of a cut by the ECB in March, according to LSEG data.

On Wall Street, the Dow Jones Industrial Average closed down 79.72 points, or 0.22%, to 36,124.72, the S&P 500 lost 2.59 points, or 0.06 %, to 4,567.19 and the Nasdaq Composite gained 44.42 points, or 0.31 %, to 14,229.91.

The Fed’s next policy meeting is on Dec. 12-13.

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.

“As interest rates rise and as demand slows, companies are pulling back on job openings, which is essentially what the Fed wants,” said Sam Stovall, chief investment strategist at CFRA Research in New York.

“The Fed probably is done raising rates, and the only question outstanding is when they start to cut,” Stovall said.

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 11 basis points to 4.174%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, declined 8 basis points to 4.581% on the day.

European shares closed higher, and Germany’s DAX climbed 0.8% to close at a fresh record, buoyed by strong gains in Allianz and Daimler Truck Holding, with the STOXX 600 index up 0.4%. MSCI’s gauge of stocks across the globe lost 0.23%, the first back-to-back declines for the index in five weeks.

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 rose 0.32% at 103.95, while the euro was down 0.38% to $1.0795.

In commodities, U.S. crude settled 0.99% lower at $72.32 a barrel while Brent crude settled at $77.20, down 1.06% in choppy trading, the lowest since July, as the stronger U.S. dollar and demand concerns offset supply worries 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 Brettell in New York, Noel Randewich in San Francisco, Amruta Khandekar and Shristi Achar A in Bengaluru; Editing by Mark Potter, Marguerita Choy and Aurora Ellis)