Stocks turn mixed as optimism ‘hijacked’ by rates; dollar rises

Bloomberg

US stocks pared losses as investors mulled the impact of rising US bond yields and disappointing earnings. The dollar resumed its rally, climbing to the highest in three months.
“The sharp sell-off in rates has hijacked market sentiment,” Mark McCormick, the North American head of foreign-exchange strategy at Toronto-Dominion Bank, wrote in a note
to clients. “The 3% level on the US 10-year does not have any magical properties, but market participants are trying to navigate a global markets regime shift with a toolkit of mostly unstable correlations.”
The greenback strengthened against almost every major peer, with the euro among the losers a day before the European Central Bank’s next rate decision. The region’s currency weakness was no tonic for equities, and the Stoxx Europe 600 Index fell along with the S&P 500 and the MSCI Asia Pacific Index after less-than-optimistic earnings forecasts from bellwethers including Caterpillar Inc.
Upward momentum in the dollar looks set to force a rethink on many of the most popular trades just now, giving equity investors yet another factor to grapple with after rising yields and threats to global trade roiled markets. They had been looking to earnings for some cheer, but even good earnings results have failed to inspire a pickup in equities, causing worries over peak growth to materialise.
Wednesday’s moves weren’t entirely risk-off, however, and established safe-haven assets including gold and the yen retreated.
Elsewhere, most industrial metals declined. Emerging-market currencies mostly weakened, led by South Africa’s rand. US GDP data are due on Friday. Earnings season continues. The European Central Bank has a rate decision on Thursday. Investors will watch for any sign that officials are preparing a shift in stimulus plans for their June meeting. The Bank of Japan announces its latest policy decision on Friday and releases a quarterly outlook report. The leaders of North and South Korea meet on Friday.
The S&P 500 Index dropped 0.2 percent in New York, while the Dow Jones Industrial Average dropped 0.2 percent and the Nasdaq Composite Index weakened 0.2 percent. The Stoxx Europe 600 Index fell 1.2 percent on the largest decrease in more than a month, while the MSCI Asia Pacific Index dipped 0.7 percent. The UK’s FTSE 100 Index fell 1 percent, the first retreat in more than a week. The MSCI Emerging Market Index fell 1.4 percent.
The Bloomberg Dollar Spot Index rose 0.5 percent to the highest in almost 15 weeks. The euro declined 0.4 percent to $1.2182, the weakest in almost 15 weeks. The British pound decreased 0.2 percent to $1.3944, the weakest in almost six weeks. The Japanese yen dipped 0.4 percent to 109.20 per dollar, after hitting the weakest in 11 weeks with its sixth straight decline.
The yield on 10-year Treasuries gained one basis point to 3.01 percent, after reaching the highest in more
than four years on its eighth straight advance. Germany’s 10-year yield climbed one basis point to 0.64 percent, the highest in almost seven weeks. Britain’s 10-year yield increased two basis points to 1.56 percent, the highest in eight weeks.
West Texas Intermediate crude rose 0.1 percent to $67.81 a barrel. Gold declined 0.7 percent to $1,320.82 an ounce, the weakest in five weeks.