Investors Adjust Rate Cut Expectations, S&P 500 Down 1%

Barry Adams
02 Apr, 2024
New York City

U.S. benchmark indexes extended losses to the second day in a row, and yields on Treasury notes approached three-month highs after a string of data points highlighted a resilient economy. 

The S&P 500 index and the Nasdaq Composite fell more than 1%, and the yield on 10-year Treasury notes advanced to a three-month high of 4.39%. 

Manufactured goods orders surged more than 7% from a year ago, following the rise of construction spending by 10.7%. 

Moreover, job openings edged slightly higher, and hirings and separations were stable for the third month in a row in February. 

Investors are scaling back expectations of interest rate cuts as early as June after the personal consumption expenditures price index eased but stayed sharply higher than the Fed's 2% target rate. 

Total construction activities, private and public, in February also rose more than expected from a year ago, monthly update from the U.S. Census Bureau showed on Monday. 

New orders for manufactured goods in February rose following two consecutive monthly declines, increasing 1.4% monthly to $576.8 billion, the U.S. Census Bureau reported Tuesday. 

This followed a monthly 3.8% decrease in January. 

New orders for all manufactured goods rose 7.5% from a year ago, indicating strong demand for goods. 

Shipments, following two consecutive months of decline, rose 1.4% from the previous month to $581.6 billion and advanced 7.1% from a year ago. 

 

U.S. Indexes and Yields

The S&P 500 index decreased 0.9% to 5,198.17, and the Nasdaq Composite fell 1.1% to 16,219.45. 

The yield on 2-year Treasury notes increased to 4.73%, 10-year Treasury notes inched up to 4.39%, and 30-year Treasury bonds edged up to 4.53%.

WTI crude oil increased $0.86 to $84.75 a barrel, and natural gas prices increased 4 cents to $1.87 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 $10.60 to $2,261.11 an ounce, and silver rose 72 cents to $25.82. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 104.79.

 

U.S. Stock Movers

Health insurance stocks fell sharply after the Centers for Medicare and Medicaid Services finalized its capitation rates to 3.7% for financial year 2025, matching the rate in financial year 2024. 

Humana dropped 10.9% to $313.0, CVS Health fell 6.5% to $74.49, UnitedHealth Group declined 4.3% to $468.54, and Cigna Group eased 1.9% to $357.32 on the worry that operating margin will remain under pressure. 

Payments from the government to Medicare Advantage plans are expected to increase on average by 3.70%, or over $16 billion, from 2024 to 2025. 

The federal government is projected to pay between $500 and $600 billion in Medicare Advantage payments to private health plans in 2025.

PVH Corp. plunged 22% to $108.40 after the apparel maker and the parent company of popular brands Tommy Hilfiger and Calvin Klein offered a weak full-year outlook, citing weak macroeconomic conditions in Europe. 

General Electric Co. dropped 20% to $139.91 after the diversified conglomerate completed its three-way breakup, and its aerospace and energy business is scheduled to trade as a separate company starting Tuesday. 

Canoo Inc. plunged 30% to $2.68 after the management highlighted "substantial doubt" about the company's ability to continue as a going concern. 

Trump Media & Technology Group declined 1% to $48.16 and extended a two-day loss to more than 22% after the company reported a sharply higher quarterly loss in its latest quarter a day ago. 

Tesla declined 6.7% to $163.65 after the electric vehicle maker reported sharply lower deliveries in the first quarter. 

Tesla deliveries in the first quarter declined to 386,810 units from 412,376 units a year ago, and production eased to 433,371 units from 440.808 units a year ago. 

 

European Markets Drop 1% Tracking Losses in New York 

European market indexes struggled to advance, bond yields edged higher, and the euro held steady in Tuesday's trading. 

Market sentiment was cautiously optimistic as investors reviewed mixed updates on factory activities in the eurozone, the U.K., Spain, Italy, and Holland. 

Benchmark indexes in Paris, Frankfurt, and London hovered near recent record highs as investors debated future interest rate paths amid a weak macroeconomic backdrop and a moderating but elevated inflation level. 

Crude oil prices advanced to a five-month high, stoking fears that higher energy prices may fuel another bout of inflation, supporting the case for higher-for-longer interest rates. 

In the afternoon trading, benchmark indexes dropped more than 1% tracking losses in New York on the worry that the Federal Reserve is more likely to delay its rate cut following the recent string of positive economic data. 

 

UK Home Price Annual Change Accelerate In March 

The UK home price unexpectedly declined in March from the previous month, according to the latest update released by the Nationwide Building Society. 

The Nationwide Building Society's house price index decreased 0.2% from the previous month in March, after rising 0.7% in February.

The home price index increased 1.6% from a year ago, faster than 1.2% rise in February, and the average home price increased to £261,142 from £260,420 in the previous month. 

 

Euro Area Inflation Expectations Moderate

The consumer expectations of inflation in the Euro Area moderated in February, according to the latest survey released by the European Central Bank. 

Median expectations of inflation over the next 12 months eased to 3.1% in February from 3.3% in January, the survey showed. 

The inflation expectations dropped to the lowest since the start of the Ukraine war; however, the three-year forward inflation outlook was unchanged at 2.5%. 

However, consumers anticipated home prices to advance at a slightly faster pace of 2.4% from 2.2% in January, but mortgage rate expectations were unchanged at 5.1%. 

Unemployment rate expectations over the next 12 months stayed the same at 10.9%, and economic growth over the same period was unchanged at -1.1%. 

Consumers were slightly more optimistic about nominal income growth expectations, with an increase of 1.4% compared to the previous expectation of 1.2% in January, but nominal spending growth expectations were stable at 3.7%. 

 

Europe Indexes and Yields

The DAX index decreased by 1.1% to 18,283.13, the CAC-40 index fell by 0.9% to 8,130.05, and the FTSE 100 index inched lower by 0.2% to 7,935.09.

The yield on 10-year German bonds edged up to 2.39%; French bonds inched higher to 2.89%; the UK gilts edged higher to 4.09%; and Italian bonds inched lower to 3.76%.

The euro edged higher to $1.076, the British pound inched higher to $1.256, and the U.S. dollar held steady at 90.84 Swiss cents.

Brent crude increased $0.73 to $88.37. a barrel, and the Dutch TTF natural gas fell by €0.88 to €26.47 per MWh.

 

Europe Stock Movers

Rheinmetall AG jumped 2.2% to €533.40 after the German automotive products and arms maker won an order worth 135 million from the military contractor KNDS Group. 

UBS Group advanced 0.5% to CHF 27.89 after the Swiss bank launched a new stock repurchase program of up to $2 billion. 

Metals and mining companies advanced after manufacturing activities expanded at a faster pace in the U.S. and China. 

Antofagasta, Anglo America, and Glencore gained between 1% and 2.5%. 

BP plc and Shell PLC jumped 2.9% after Brent crude oil prices approached a five-month high of $89 a barrel on the expectation of rising demand in China and falling inventories in the U.S. 

Persimmon declined 1.9% to 1,290.50 pence, and Taylor Wimpey decreased 1,290.50 pence after the home price index unexpectedly fell in March after higher mortgage rates dented demand. 

CTS Eventim increased 0.5% to €82.95 after the German festival ticketing company signed a put option agreement to acquire Vivendi's festival and ticketing operation outside of France for an undisclosed amount. 

See Tickets, owned by Vivendi, sold about 44 million tickets in 2023 for trade shows, sports events, concerts, and other consumer and business events in the U.S., Belgium,   

Vivendi's ticketing business generated about €105 million of the total of €137 million through its broader festival operations, with U.S. and UK revenues accounting for the majority of the share. 

 

Asian Markets Turn Lower Amid Rate Uncertainties 

Asian markets rebounded; the Nikkei index in Tokyo soared more than 1.5% but erased most of the gains; and market indexes in Shanghai struggled to gain traction. 

The Hang Seng index in Hong Kong advanced 2.4% after investors returned from a long weekend and reacted to an improving economic manufacturing activity report released over the weekend. 

However, market indexes in South Korea and Australia closed mixed amid interest rate uncertainties. 

 

Japan Indexes Erase Early Gains in Choppy Trading 

Stocks in Japan attempted to rebound in Tuesday's trading in cautious trading after the U.S. manufacturing survey showed stronger-than-expected activities in March. 

Moreover, investors also turned cautious a day after the release of data on business confidence among large manufacturing companies and the persistent weakness in factory activities for the tenth month in a row. 

In other economic news, the monetary base in Japan increased by 1.6% from a year ago in March to 666,240 trillion yen, the Bank of Japan said on Tuesday. 

The monetary base data for February was revised higher to 2.4% from the previous estimate of 2.1%, and the seasonally adjusted monetary base rose 3.6%.

The Nikkei 225 index rose 0.1% to 39,837.47, and the Topix index fell 0.2% to 2,714.93. 

Large manufacturing companies traded lower on the prospect of higher labor costs, but tech companies continued to extend this year's gains. 

Tokyo Electron, SoftBank, Screen Holdings, and Disco Corp. gained between 1% and 3%. 

Sumco Corp., Ebara Corp., and Rrenesas Electronics gained between 2% and 4%. 

Toyota Motor, Honda Motor, Nissan Motor, and Subaru declined between 1% and 4%. 

Nippon Steel advanced 2% to ¥3,689.0 as the company made its final push to acquire U.S. Steel for $14.1 billion. 

 

Hong Kong Stocks Rebound, Shanghai Stocks Struggle Near Flatline

Stocks in Shanghai lacked direction, but benchmark indexes in Hong Kong advanced after investors reacted positively to the rising factory activity data released over the weekend. 

China's manufacturing purchasing managers' index increased to 50.8 in March from 49.1 in February, the National Bureau of Statistics reported on Sunday. 

Moreover, investors hoped that foreign investors would continue to purchase Chinese stocks following the net inflows in February and March. 

The Hang Seng index declined nearly 3% in the first quarter and extended four-year losses on the protracted property market slump, weak consumer and investor confidence, and the government's prioritizing of national security over the economy, targeting foreign firms. 

The CSI 300 index decreased 0.5% to 3,576.11, but the Hang Seng index rose 2.2% to 16,912.34. 

Bank of China, China Merchant Bank, ICBC, and Agriculture Bank of China advanced between 1% and 4% in Hong Kong trading. 

Xiaomi Corp. soared 10.4% to HK$16.48 after the smart phone maker reported strong demand for its electric vehicle released last week. 

 

India Stocks Look Down, Rupee Holds Firm Near Record Low

Stocks lacked direction in Mumbai trading, and investors awaited interest rate decisions from the Reserve Bank of India on Friday. 

The Sensex and the Nifty indexes traded around the flatline as investors debated future rate paths and domestic macroeconomic conditions. 

The yield on 5-year Indian government bonds held stable, and the Indian rupee traded near record lows after the U.S. dollar edged higher against major international currencies. 

The Sensex index increased 0.04% to 74,044.45, and the Nifty index edged up 0.2% to 22,490.05. 

On the Mumbai stock exchange, 68 stocks traded at their 52-week highs and 12 stocks traded at their 52-week lows.

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