As Treasury Yields Shift Higher, Global Markets Face Stronger Headwinds Ahead

Barry Adams
01 Mar, 2023
New York City

U.S. stocks trended lower in volatile trading after rate jitters dominated market sentiment. 

Market jitters kept indexes in check and benchmark indexes traded in a right range lacking direction after rising Treasury yields and weak corporate results compounded market worries. 

Stocks got an early boost after China's official data on the manufacturing sector was much stronger-than-anticipated. 

Treasury yields advanced and the yields on 1-year and six-month Treasury notes inched higher above 5%-level.  

Investors are still struggling decide terminal rate level with some investors estimating fed funds target rate range to reach as high as 6.0%. 

Recent reports on the economy, inflation and employment are signaling that inflation is not likely to cool as fast as previously expected, which continues to put upward pressure on rates. 

Higher rates have spilled over to the mortgage market and escalating mortgage rates dragged applications to the lows not seen in 28 years.  

 

China's Manufacturing Expanded at 11-year High Rate 

China's PMI in February rose to 52.6 from 50.1 in January, the high not seen since April 2012, the National Bureau of Statistics reported Thursday. 

Manufacturing sector expanded for the second month in a row after Beijing ended its three-year old zero-Covid policy.  

China's service sector accelerated its expansion, according to the data released by the NBS. 

Non-manufacturing PMI rose to 56.3 in February from 54.4 in the previous month after new orders expanded at a faster pace.  

 

Higher Mortgage Rates Crimp Applications to 28-year Low 

Mortgage applications declined 5.7% from the previous week, according to data released by the Mortgage Bankers Associations for the week ending February 24. 

The index measuring application volume dropped near the 28-year low after the 30-year fixed-rate mortgage increased to 6.71% last week. 

"There has now been three straight weeks of declines in applications as mortgage rates have jumped 50 basis points over the past month,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

"Purchase applications were 44% lower than a year ago and refinance applications accounted for less than a third of all applications and remained more than 70 percent behind last year’s pace, as a majority of homeowners are already locked into lower rates,” added Kan.   

 

Indexes & Yields 

The S&P 500 index decreased 0.5% to 3,951.39 and the Nasdaq Composite index fell 0.7% to 11,379.48. 

The yield on 2-year Treasury notes inched higher to 4.88%, 10-year Treasury notes rose to 3.99% and 30-year Treasury bonds held steady at 3.96%. 

Crude oil increased 54 cents to $77.59 a barrel and natural gas rose 6 cents to $2.81 a thermal unit. 

 

U.S. Movers

Lowe's Companies said revenue in the fourth quarter rose to $22.4 billion from $21.3 billion and net income declined to $957 million from $1.2 billion and diluted earnings per share fell to $1.58 from $1.78 in the previous year. 

Comparable sales in the quarter declined 1.5%. 

In full-year  2022, revenue rose to $97 billion from $96.3 billion and net income fell to $6.4 billion from $8.4 billion and diluted earnings per share decreased to $10.17 from $12.04 a year ago.

During the quarter, the retailer repurchased approximately 10 million shares for $2.0 billion and it repurchased 71 million shares for $14.1 billion for the year. 

The company also paid $643 million in dividends in the fourth quarter and $2.4 billion in dividends for the year. 

In  total, the company returned $16.5 billion to shareholders through share repurchases and dividends in 2022.

Kohl's Corporation said revenue in the fourth quarter decreased 7.2% to $5.8 billion and the retailer swung to a net loss of $273 million from $299 million and diluted earnings per share was ($.2.49) compared to $2.20 a year ago. 

Comparable sales in the quarter fell 6.6%. 

In full-year 2022, revenue fell 7.1% to $17.2 billion and the apparel retailer swung to a net loss of $19 million compared to a profit of $938 million and diluted earnings per share was ($0.15) compared to $6.32 a year ago. 

Comparable sales in the year declined 6.6%.  The retailer announced a dividend of 50 cents per share payable March 29 to shareholders of record on March 15. 

 

European Markets Pared Gains In Afternoon Trading 

European market indexes opened higher on China optimism but major averages in the region eased in the final hour of trading and closed down.  

Stocks opened higher after China's official measure of manufacturing activities expanded at the fastest rate in eleven years and service sector activities also rose at a robust pace. 

Upbeat China data failed to overcome ongoing investor worries about economic slowdown and aggressive rate hikes. 

Economic news in the region showed cooling of inflation is likely to take longer than previously expected and labor market conditions remained tight. 

Germany's consumer price inflation held steady at 8.7% but elevated in February, said the Federal Statistical Office.  Jobless rate was stable at 5.5% in the month despite challenging market conditions, said the Federal Labor Agency. 

Swiss retail sales declined for the fourth month in a row in January. 

Norway's current account jumped to NOK 361.20 billion in the fourth quarter of 2022 from NOK 230.84 billion from the previous year. 

Surplus of goods and services accounts increased to NOK 324.65 billion from NOK 266.66 billion a year ago. 

 

Germany's Consumer Price Inflation Held Steady 

Consumer price inflation in Germany held steady in February, the Federal Statistical Office or Destatis said in a preliminary report on Wednesday. 

Consumer price index rose 8.7% in the month matching the increase in January despite the sharp fall in energy prices. 

Energy prices rose at a slower pace of 19.1% in February from 23.1% rise in January but food price inflation accelerated to 21.8% from 20.2% in January.  

Energy prices rose at a double digit pace despite the government's relief package for consumers. 

On a monthly basis, consumer prices rose 0.8%. 

 

Swiss Retail Sales Extended Decline to Fourth Month

Swiss retail sales declined for the fourth month in a row in January, the Federal Statistical Office reported Thursday. 

Sales declined 2.2% in January after falling at a rate of 3.0% in December on an annual basis after food and non-food items sales dropped. 

Sales of food, tobacco and beverages declined 3.3% and non-food items sales dropped 2.3%, the statistical office reported.   

On a monthly basis, retail sales rose a seasonally adjusted 0.6% and In nominal terms, retail sales advanced 0.7% annually and 1.2% from the previous month in January.

 

Indexes & Yields 

The DAX index declined 0.4% to 15,305.02, the CAC-40 index dropped 0.5% to 7,234.25 and the FTSE 100 index rose 0.5% to 7,914.93. 

The yield on 10-year German Bunds increased to 2.72%, French bonds rose to 3.21%, UK gilts to 3.82% and Italian bonds to 4.57%. 

The euro increased to $1.066, the British pound inched lower to $1.205 and the Swiss franc to 94.00 cents. 

Brent crude oil increased 91 cents to $84.36 a barrel and natural gas rose 40 cents to $47.08 per MWh. 

 

Europe Movers  

Resource stocks in London and across Europe and luxury fashion goods makers traded higher on China optimism. Brent crude oil and copper and iron ore prices rose as well.  

BP Plc and Shell Plc increased 1% and mining companies Antofagasta, Glencore and Anglo American advanced between 3% and 5%. 

LVMH and Kering SA added between 1% and 2% on the hopes of higher sales in China. 

Persimmon Plc dropped 9.7% to 1,310.81 pence after the UK homebuilder reported a fall in pre-tax earnings and estimated lower home completions in 2023. 

Euronext NV increased 4.0% to €71.92 after the pan-European bourse offering various trading services withdrew its offer to acquire Allfunds Group Plc. 

Allfunds declined 13.2% to €7.19. 

PUMA SE declined 6.8% to €56.30 after the German sportswear maker warned cost pressures are likely to persist in 2023. 

Fourth quarter sales increased 24.3% to  €2.2 billion but net income plunged to €1 million from €8 million in the previous year. 

Full-year 2022 revenue increased 24.4% to €8.4 billion and net income improved to  €354 million from € 310 million a year ago. 

Earnings per share in the full-year 2022 increased to €2.36 from €2.07 in 2021.