U.S. Stocks Turn Lower as Treasury Yields Approach 3-month Highs

Barry Adams
01 Apr, 2024
New York City

Stocks on Wall Street lacked direction after traders returned from a three-day weekend. 

Benchmark indexes struggled around the flat line after February's price consumption expenditures index met market expectations. 

Moreover, construction spending eased in February from the previous month but rose in double digits from a year ago. 

The U.S. Personal Consumption Expenditures Price Index in February and the alternative measure of inflation rose less than expected. The index is closely watched by the Federal Reserve to monitor how consumers react to inflation and adjust purchases. 

The latest update on the index was released on Friday, and U.S. investors reacted to the data after trading resumed following the Good Friday holiday. 

The widely followed stock market indexes advanced in the first quarter, and the S&P 500 index gained 10.2%, its best quarterly performance in five years. 

The Nasdaq Composite advanced 9.1%, and the Dow Jones Industrial Average added 5.6%. 

Investors have been bidding up stocks in the hopes that central banks around the world are laying the groundwork for possible rate cuts in the second half as inflation continues to soften.

A week ago, the US, the UK, and Norway held their policy rates, but Switzerland bucked the trend and led other central banks by lowering rates by 25 basis points.

This week investors are looking ahead to the release of the Job Openings and Labor Turnover Survey report on Tuesday, the ADP’s private sector employment update on Wednesday, and the nonfarm payrolls report on Friday.

 

PCE Price Index Slows But Stays Elevated

The PCE price index rose 2.5% from a year ago and advanced 0.3% from the previous month, the U.S. Bureau of Economic Analysis reported Friday. 

The index accelerated to an annual rate of 2.5% from 2.4% and slowed to 0.3% monthly from 1.0% in the previous month, respectively. 

The core rate, which excludes volatile food and energy prices, rose at a slower pace of 2.8% from the 2.9% rate in January. 

 

Construction Spending Edges Lower

Construction spending in February decreased by 0.3% from the previous month but soared by 10.7% from a year ago, the U.S. Census Bureau reported Monday. 

Total construction spending eased to an annual pace of $2.091 trillion, up from $2.096 trillion. 

Private construction was unchanged from the previous month but rose 9% from a year ago to $1.6 trillion, and public construction spending edged down 1.2% from the previous month but rose 16.8% to an annual pace of $474.4 billion. 

Of the private construction spending, residential construction spending increased 0.7% from the previous month or rose 6.3% from a year ago to $901 billion. 

 

U.S. Indexes and Yields

The S&P 500 index decreased 0.3% to 5,237.58, and the Nasdaq Composite fell 0.1% to 16,368.48. 

The yield on 2-year Treasury notes increased to 4.62%, 10-year Treasury notes inched down to 4.21%, and 30-year Treasury bonds edged up to 4.37%.

WTI crude oil increased $1.26 to $84.39 a barrel, and natural gas prices increased 9 cents to $1.84 a thermal unit.

Gold jumped to a record high on the hopes that the U.S. Federal Reserve is more likely to lower interest rates after the release of the weaker-than-expected PCE Price Index. 

Moreover, elevated geopolitical tensions in the Middle East and the ongoing war in Ukraine contributed to market anxieties.

Gold increased by $9.88 to $2,241.81 an ounce, and silver rose 8 cents to $25.05. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 105.03.

 

Indexes In Japan and China Diverge After Factory Activities Updates

Stock markets in Asia lacked momentum amid thin trading as investors in Japan confronted weak economic data, but factory activities rose more than expected in China. 

Investors also reviewed the U.S. Personal Consumption Expenditures Price Index in February, and the alternative measure of inflation watched by the Federal Reserve rose less than expected. 

 

Nikkei 225 Drops 1% Amid Weak Key Economic Reports 

Benchmark indexes in Tokyo headed lower and extended losses after the Bank of Japan showed a decline in sentiment among large manufacturers. 

The quarterly Tankan survey showed that sentiment among large manufacturers eased to +11 in the first quarter from an upwardly revised +13 in the fourth quarter, while the manufacturing outlook for the second quarter points to a further slowdown to +10.

The weakness in the outlook was due to the shut-down of automobile manufacturing plants. 

The au Jibun Bank Japan Manufacturing PMI was confirmed at 48.2% in March, following the final reading of 47.2 in February, which was the lowest level since August 2020, according to S&P Global. 

The private survey showed that factory activities contracted for the tenth month in a row, but the decline was the smallest since November, amid softer declines in output and new orders falling at the slowest pace in five months. 

Nonetheless, factory activities continued to shrink amid global macroeconomic headwinds and continued supply chain disruptions in the Red Sea and Panama Canal. 

The Nikkei 225 stock average decreased 1.1% to 39,920.18, and the Topix index dropped 1.5% to 39,920.18. 

Stocks declined in a broad-based sell-off, and technology, financial services providers, and diversified conglomerates led the decliners. 

SoftBank, Screen Holdings, Advantest, Tokyo Electron, and Disco Holdings dropped between 1.5% and 4%. 

Mitsubishi UFJ, Mizuho Financial Group, and Sumitomo Mitsui are around 3.5%. 

Marubeni, Itochu, Mitsui & Company, Mitsubishi Corp., and Sumitomo declined between 1.3% and 3.0%. 

 

China Manufacturing Activities Expanded Fifth Consecutive Month

Chinese stocks jumped and benchmark indexes advanced the most in a month after a private survey showed China's manufacturing activities rose at a faster-than-expected pace in March. 

The Caixin China General Manufacturing PMI was 51.1 in March, higher than 50.9 in February. 

The 50-level mark separates growth from contraction, and activities expanded for the fifth month in a row and reached their highest level since February 2023. 

The CSI 300 index jumped 1.5% to 3,589.29, and financial markets in Hong Kong were closed for a public holiday. 

 

Foreign Investors Increase Exposure to Chinese stocks

Stocks also powered ahead after the data from exchanges showed that foreign investors purchased $11.5 billion of mainland stocks in the last two months. 

Funds controlled by foreign investors purchased 22 billion yuan, or $3 billion, of stocks in March, following the purchase of 60.7 billion yuan in February, according to Stock Connect data. 

Foreign investors have been selling mainland China stocks for six months in a row between August and January due to the protracted property market malaise, weak consumer confidence, and fragile economic recovery after the ending of zero COVID restrictions. 

BYD added 3.8% to 210.70 yuan, CATL gained 4% to 197.96 yuan, Ganfeng Lithium Group advanced 7.7% to 39.15 yuan, and Tianqi Lithium added 4.8% to 50.27 yuan. 

 

India Stocks Advance Ahead of Rate Decision 

Stocks in Mumbai advanced amid thin trading in Asia and positive international sentiment. 

The Sensex and the Nifty indexes gained more than 0.7%, and the yield on Indian government bonds held steady in the hopes that the Reserve Bank of India would hold its benchmark rate later in the week. 

Market sentiment was positive, and metals stocks advanced after a private survey showed China's manufacturing activities rose at a faster-than-expected pace in March. 

The Sensex index increased 0.7% to 74,213.44, and the Nifty index edged up 0.8% to 22,519.55. 

On the Mumbai stock exchange, 95 stocks traded at their 52-week highs and 37 stocks traded at their 52-week lows.

The yield on the 10-year Indian government bonds decreased to 7.05%, and the Indian rupee held steady at ₹83.35 against the U.S. dollar.

Prestige Estates Projects jumped 4% to ₹1,217.60 after the company struck an investment partnership with the Abu Dhabi Investment Authority and funds controlled by Kotak Mahindra. 

NHPC rose 0.5% to ₹89.30, and the company secured a loan of 20 billion yen from a Japan-controlled investment company for the construction of a power plant in Manipur.