The major market averages were mixed on Tuesday while yields climbed, as investors keenly await Federal Reserve’s chair Jerome Powell’s speech with traders now expecting the first rate cut to take place in September.
Early on and the Dow (DJI) was +0.1%, the S&P 500 (SP500) was -0.2%, and the Nasdaq Composite (COMP:IND) was -0.1%.
The 10-year Treasury yield (US10Y) rose 7 basis points to 4.67%. The 2-year yield (US2Y) rose 3 basis points to 4.95%.
“Equities had initially opened higher in the absence of any immediate escalation in the Middle East, but sentiment turned amid renewed concerns over Israel’s response to Iran’s weekend attack, with the rise in rates also weighing,” said Deutsche Bank’s Jim Reid.
“I continue to believe that it’s going to be incredibly difficult to smoothly land this US economic cycle given we’ve moved from the biggest increase in money supply since WWII to the biggest contraction since the 1930,” Reid added.
The possibility of a rate cut in June also took another hit, after retail sales stayed strong in March, and core retail sales accelerated.
Expectations for a rate cut in June fell to 21%, while chances for the same is at 70.5% for September, according to CME Group’s FedWatch tool.
“Markets are currently under the cosh, with simmering Middle East tensions adding to a tepid opening to the earnings season and further economic data showing little evidence that the need for interest rate cuts is approaching,” said Richard Hunter from Interactive Investor.
In turn, the healthy consumer spending shows economic strength, further lessening the pressure on the Federal Reserve to reduce interest rates, especially in light of inflation numbers which are proving resistant to dropping to the Fed’s 2% target, Hunter added.
On the economic front, Powell’s speech is scheduled at 1:15 pm ET.
March housing starts and building permits arrived. March housing starts came in at -14.7% M/M to 1.321M versus the 1.480M expected figure. At the same time, building permits came in at -4.3% M/M to 1.458M compared to the forecasted 1.510M level.
Also, U.S. industrial production data rose 0.4% M/M in March, matching the 0.4% increase that was expected.
