Rising U.S. Treasury yields and simmering Middle East tensions contributed to Wall Street’s dramatic decline on Monday, which helped reduce investor risk appetite.
The yen dropped to its lowest level in 34 years, sparking fears of an intervention, while the three main U.S. stock indexes gave up their early gains to continue Friday’s sell-off.
The U.S. Federal Reserve may postpone lowering its key policy rate for longer than expected, according to data on retail sales in the country for March that exceeded analyst estimates and offered fresh proof of the tenacity of American consumers.
“The market’s expectations have changed from anticipating three rate cuts this year to less than two,” stated Bill Merz, head of capital market research at Minneapolis’s U.S. Bank Wealth Management. “That’s the concern that markets are reflecting while the equity rally has stalled in recent weeks.”
Geopolitically, pleas for moderation over Israel’s response seemed to be easing tensions in the region as Iran conducted a missile and drone attack against Israel over the weekend in retribution for a suspected attack on its embassy.
“I would say that the level of uncertainty is higher than it was a week ago on the geopolitical stage and it’s understandable to see higher market volatility in the current environment,” said Merz.
The S&P 500 (.SPX) lost 61.59 points, or 1.20%, to 5,061.82, the Dow Jones Industrial Average (.DJI) opened a new tab at 37,735.11, and the Nasdaq Composite (.IXIC) opened a new tab at 15,885.02, down 290.08 points, or 1.79%.
European stock markets saw a little increase in closing prices as gains in industrial companies were restrained by weak energy shares, and investors continued to closely monitor events in the Middle East.
The MSCI global stock index (.MIWD00000PUS) opens with a new tab loss of 1.01%, while the pan-European STOXX 600 index (.STOXX) opens with a new tab rise of 0.13%.
Stocks in emerging markets dropped 1.12%. Japan’s Nikkei (.N225) opened a new tab with losses of 0.74%, while MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) opened a new tab and closed 1.06% lower.
After strong Retail Sales data indicated the Fed might keep its key policy rate in restrictive territory for longer than anticipated, yields on 10-year U.S. Treasuries increased, reaching their highest level since November.
Late on Friday, the price of benchmark 10-year notes dropped 29/32, yielding 4.6158% instead of 4.499%.
The yield on the 30-year bond recently decreased by 63/32 to 4.7323% from 4.603% late on Friday.
The yen fell to a 34-year low while the dollar rose to its best level since early November relative to a basket of international currencies.
The yen’s advance contributed to a resurgence of expectations around potential Japanese government action.
Opening a new tab, the dollar index (.DXY) increased by 0.15% while the euro fell by 0.17% to $1.0624.
At 154.23 per dollar, the Japanese yen lost 0.60% of its value against the US dollar, while the price of sterling was down 0.04% today at $1.2445.
Crude oil prices gradually decreased as the damage from Iran’s attack on Israel over the weekend was less than expected
While Brent finished the day at $90.10 per barrel, down 0.39%, U.S. crude fell 0.29% to $85.41 per barrel.
Growing demand for safe-haven assets brought on by geopolitical unrest caused gold to soar.
Spot gold increased by 1.8% to an ounce of $2,385.39.
