Stocks decline as caution prevails before US CPI data

BLOOMBERG

Stocks edged lower as cautious investors assessed the latest crop of earnings and awaited a US inflation report for insights on the path of Federal Reserve rate hikes.
Contracts for the S&P 500 and the Nasdaq 100 retreated, with Airbnb Inc sliding 13% in premarket trading after the vacation home-rental company gave a cautious forecast for revenue in the second quarter. Rivian Automotive Inc rose as the electric-vehicle maker reported a smaller-than-expected loss and reaffirmed production plans.
Personal care and media shares were the biggest drag on European stocks, outweighing positive earnings news from some companies. Credit Agricole SA rallied following a record first-quarter for the French firm’s investment bank. Vestas Wind Systems gained after the Danish wind turbine maker returned to profit.
The US inflation figures were top of mind for investors, with US stocks tipped to rally if the reading is soft enough to lay the ground for a halt to Fed tightening, teams at Goldman Sachs Group Inc and JPMorgan Chase & Co said. The report is expected to show headline consumer price index (CPI) rose by 5% in April on a year-on-year basis, still well above the 2% level targeted by the Fed.
“An acceleration of price pressure could suggest the Fed hasn’t gone far enough with its rate hike cycle, denting appetite for risk from investors who would likely look for safety if that happens,” said Pierre Veyret, a technical analyst at ActivTrades.
Policy-sensitive two-year Treasury yields edged up to 4.04% while rates on the 10-year tenor ticked slightly lower to 3.50%. An index of dollar strength was steady. Traders remain on guard to risks from the standoff in US debt talks, with some of Wall Street’s most experienced traders warning of “unthinkable” long-term damage from a default.
President Joe Biden and congressional Republicans made little tangible progress towards averting a first-ever US default. They pledged further negotiations on spending that would open the door to a possible agreement. Biden and House Speaker Kevin McCarthy plan to hold another meeting on May 12.
The cost of insuring America’s debt against default now eclipses that of some emerging markets and even junk-rated nations. Mounting investor anxiety about the prospect of a default has made it more expensive to insure Treasuries than the bonds of — among others — Greece, Mexico and Brazil, which have defaulted multiple times and have credit ratings many rungs below that of the US.
In commodities, oil snapped a three-day rally, falling as traders digested a mixed report on supplies from an industry group. Iron ore advanced as some Chinese steel mills resumed production, in a sign that demand may finally be increasing during the nation’s usual peak period for construction.
S&P 500 futures drop as much as 0.2% in New York and the Nasdaq 100 futures fell 0.3%.
While futures on the Dow Jones Industrial Average fell 0.1%, the Stoxx Europe 600 also drops 0.3% and the MSCI World index also plunges 0.1%.
The Bloomberg Dollar Spot Index was little changed and the euro was little changed at $1.0958. While the British pound was little changed at $1.2624, the Japanese yen was little changed at 135.19 per dollar. The yield on 10-year Treasuries declined two basis points to 3.50% and Germany’s 10-year yield declined three basis points to 2.32%.