NEW YORK, May 10 (Reuters) – Wall Street closed higher on Tuesday as investors waited for inflation data and worried about the prospects of slowing economic growth and the impact of policy tightening.
U.S. Treasuries rallied, with the yield on the benchmark 10-year note tumbling from a more than three-year high to below 3% as investors reassessed the inflation outlook before U.S. consumer price index (CPI) data is released Wednesday.
U.S. crude oil futures dipped below USD 100 a barrel to their lowest level in two weeks as the demand outlook was clouded by coronavirus lockdowns in China and growing recession concerns, while a strong dollar made crude more expensive for buyers using other currencies.
Markets have been volatile across asset classes due to a combination of surging inflation and fears that monetary tightening aimed at slowing price increases would cause a slowdown in global economic growth.
Last week, central banks in the United States, Britain and Australia raised interest rates and investors girded for more tightening as policymakers fought soaring inflation.
After turning red for a few hours earlier in the session, the S&P closed up slightly while Nasdaq added almost 1%. Technology, the market’s biggest growth sector, was leading gains as investors reacted to falling bond yields and bounced back after a furious sell-off on Monday.
“If we’ve seen the worst of the rate of change from long-term interest rates, it may create room for equities to do a little bit better,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in St. Louis.
The Dow Jones Industrial Average fell 84.96 points, or 0.26%, to 32,160.74, the S&P 500 gained 9.81 points, or 0.25%, to 4,001.05 and the Nasdaq Composite added 114.42 points, or 0.98%, to 11,737.67.
MSCI’s gauge of stocks across the globe gained 0.08%.
Matthew Miskin, co-chief investment strategist at John Hancock Investment Management, was reassured by policy makers including Cleveland Federal Reserve Bank President Loretta Mester. While Mester said unemployment may increase and growth may slow, she added that tightening should not cause a “sustained downturn.”
“They’ve been so hawkish so any slight move off that the market wants to sniff that out,” said Miskin. “Sentiment wise, a lot of people are looking for capitulation. The dots aren’t completely connecting yet for that.”
The U.S. dollar was choppy on Tuesday but held near a two-decade high ahead of the hotly anticipated inflation data which could provide insight on the Fed policy path.
The dollar index , which measures the greenback against a basket of other major currencies, was last up 0.193%, with the euro down 0.24% to USD 1.053.
“It’s the calm before inflation data tomorrow, so this is allowing a breather for risky assets,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C. with trader positioning that was “working in the favor of risk assets.”
The Japanese yen weakened 0.10% versus the greenback at 130.40 per dollar, while Sterling was last trading at USD 1.2314, down 0.14% on the day.
Oil prices fell in volatile trade as the market balanced impending European Union sanctions on Russian oil with demand concerns related to coronavirus lockdowns in China, a strong dollar and growing recession risks.
U.S. crude recently fell 3.35% to USD 99.64 per barrel and Brent was at USD 102.26, down 3.47% on the day.
Earlier data showed China’s export growth slowed to its weakest in almost two years, as the central bank pledged to step up support for the slowing economy.
Benchmark 10-year notes last rose 22/32 in price to yield 2.9947%, down from 3.079% late on Monday.
“It’s a risk recalibration. There’s no other catalyst, other than it’s gone too far, too fast,” George Goncalves, head of U.S. macro strategy at MUFG Securities said, referring to yields. “Maybe we’re going to get a period of inflation that won’t be just heading higher unabatedly.”
Spot gold dropped 1.0% to USD 1,835.86 an ounce as investors eyed the rising dollar and waited for Wednesday’s inflation data.
Elsewhere, bitcoin was up 3.7% after earlier falling to its lowest level since July 2021. Tuesday’s gain recovered some losses from its 11.8% plunge on Monday.
(Reporting by Sinéad Carew; Additional reporting by Herbert Lash and Chuck Mikolajczak in New York, Elizabeth Howcroft in London; Editing by Alexander Smith, Nick Macfie and Lisa Shumaker)