U.S. Stocks Slide and Treasury Yields Jump After Fed Sees More Rate Hikes

Barry Adams
05 Jul, 2023
New York City

Market averages traded lower as trading resumed in holiday-shortened week and losses deepened after the release of the minutes of the latest FOMC meeting. 

All participants deemed appropriate to pause rates and evaluate economy's progress in achieving maximum employment and price stability. 

But few participants were ready to raise rates by 25 basis points after several participants noted that most of the impact of cumulative rate hikes on the economy has already been felt, but the pace of declines in inflation has been less than anticipated. 

Participants also noted that more rate hikes may be necessary in cooling inflation to the central bank's 2% goal and nominal wage gains have been moderating but are still inconsistent with the central bank's target on inflation. 

Tech stocks traded lower after rallying for six weeks following optimism related to artificial intelligence fueled demand for semiconductor chips. 

Investors also digested service sector growth conditions from China, the Euro Area and the UK. 

Market indexes in Paris, Frankfurt and London edged down after the latest measures of the service sector showed a slower growth in the UK, the Euro Area and China but industrial activities in France and Spain were ahead of expectations. 

 

U.S. Indexes & Yields 

The S&P 500 index traded down 0.1% to 4,448.72 and the Nasdaq Composite edged lower 0.1% to 13,804.38.  

The yield on 2-year Treasury notes increased to 4.95%, 10-year Treasury notes inched higher to 3.93% and 30-year Treasury bonds edged up to 3.95%. 

Crude oil decreased $0.93 to $72.08 a barrel and natural gas prices decreased 8 cents to $2.66 a thermal unit. 

 

U.S. Stock Movers

Electric vehicle makers were in focus for the second day this week after Tesla and Rivian reported production data. 

Rivian Automotive Inc gained 4% to $20.29 and on Monday the company said vehicle deliveries in the June quarter surged 59% from a year ago to 12,640 units. 

Tesla Inc edged slightly higher to $280.11 and extended Monday's gains of 5% after the company reported vehicle production in the June quarter increased 83% to about 477,000. 

United Parcel Service, Inc declined 2.4% to $179.45 after talks with the labor union reached an impasse. 

The current labor agreement between UPS and Teamster expires at the end of July. 

On Wednesday, the Teamsters union said in a press release that UPS "walked away from table" but the company countered saying it had not walked away from negotiations and was hoping for the union to resume negotiations. 

American Equity Investment Life Holding increased 1.0% to $52.30 after the company agreed to be acquired by Brookfield Reinsurance for $4.3 billion. 

 

European Markets Turned Lower 

European markets traded lower and investors reviewed the latest indicators of the service sector. 

Market indexes in Paris, Frankfurt and London edged down after the latest measures of the service sector showed a slower growth in the UK, the Euro Area and China but industrial activities in France and Spain were ahead of expectations. 

Eurozone Services PMI decreased to 52.0 in June from 55.1 in May, according to a final survey update released by S&P Global. In addition, the service sector expanded in the UK but at a slower pace.  

Any measure below 50 indicates contraction in growth and above shows expansion. 

The HCOB Italy Services PMI fell to 52.2 in June from 54.0 in May and dropped to the lowest level in four months.  

The HCOB Spain Composite PMI declined to 52.6 in June from 55.2 in May and declined for the third month in a row and fell to the slowest pace since January.  

The service PMI slowed to 53.4 in June from 56.7 in May but the manufacturing sector deepened the contraction to 48..0 from 48.40 respectively. 

The private survey of China's service industry conducted by Caixin/S&P Global indicated a decline to 53.9 in June from 57.1 in May. The growth in the sector declined to the slowest pace since January. 

 

Eurozone Wholesale Inflation Turned Negative 

The measure of wholesale price inflation turned negative for the first time in May since December 2020 after energy costs dropped 13.3% and intermediate goods prices fell 1.5%. 

Producer price inflation in the Euro Are declined by 1.5% in May following a downwardly revised increase of 0.9% in April, the statistical office of the European Union reported Wednesday.   

On a monthly basis, producer price inflation declined 1.9% in May, a fifth monthly decline in a row. 

 

Europe Indexes & Yields 

The DAX index decreased 0.6% to 15,937.58, the CAC-40 index declined 0.8% to 7,310.81 and the FTSE 100 index decreased 1.0% to 7,442.10. 

The yield on 10-year German Bunds inched higher to 2.41%, French bonds traded lower to 2.96%, the UK gilts edged up to 4.41% and Italian bonds decreased to 4.13%.

The euro edged higher to $1.087, the British pound to $1.27 and the U.S. dollar fetched 89.85 Swiss cents

Brent crude increased $0.54 to $76.79 a barrel and the Dutch TTF natural gas increased €1.04 to €34.37 per MWh.

 

Europe Stock Movers

Evotec SE increased 3.4% to €20.93 after the German drug company said its unit has secured a second contract from the U.S. Department of Defense for $74 million. 

Numis Corporation Plc increased 0.1% to 332.94 pence despite the UK-based investment bank warning of lower deal volume amid ongoing market weakness. 

SIG Plc plunged 10.4% to 30.90 pence after the UK-based construction materials firm issued a profit warning. 

Keller Group Plc soared 11.5% to 787.55 pence on the expectations of positive earnings. Earlier the geotechnical specialist contractor had indicated strong activities in the first half and forecasted record revenue in the period. 

Impellam Group Plc jumped 6.6% to 730.30 pence after the UK-based staffing company said it is in a potential merger discussion with HeadFirst Global.