Stocks on Wall Street extended declines Wednesday, while the dollar built new gains against its global peers and Treasury yields bumped higher, as investors continue to focus on weakening growth prospects in Europe and Asia while tracking bets on a near-term rate hike in the resilient U.S. economy.
Treasury bond yields dictated much of the trading action on Tuesday, and will likely remain in focus again today, as a wave of new corporate bond sales -- which could total $37 billion this week and more than $120 billion this month -- alongside hefty government bond auctions adds further upward pressure an already volatile market.
Benchmark 10-year note yields, which hit a session high of 4.292% yesterday, rose to 4.284% in the early New York session while 2-year paper rose to 5.014% following ISM data showing a notable jump in services sector activity -- the most important component of U.S. economic growth -- over the month of August, with a subindex of prices paid accelerating firmly from July levels, adding to inflation pressures.
That helped the U.S. dollar index, which tracks the greenback against a basket of six global currency peers, rise to a fresh six-month high of 105.013 in early New York dealing. The index was last marked 0.05% higher on the session at 104.902.
"The ISM Services Sector report underscores the resilience of the largest portion of the economy as the headline print came in higher than expectations, underpinned by a stronger new orders metric," said Quincy Krosby, chief global strategist for LPL Financial in Charlotte. "Unfortunately, the prices paid component moved in the wrong direction -- similar to the higher prices paid in the manufacturing report--edging markedly higher."
"This is certainly not good news for a data dependent Fed, as the immediate reaction in the Treasury market saw the ten-year Treasury yield jump higher while equities remain under pressure," she added. "With oil and food prices also higher, this report points to a Fed whose job to quell inflation is certainly not yet quite finished."
Bets on a November rate hike edged higher, to 47.2%, while the odds that the Federal Reserve will hold its benchmark lending rate steady at between 5.25% and 5.5% later this month in Washington were pegged at 91%.
Another set of weak data from Europe overnight, in the form of industrial orders from Germany and retail sales from around the region, added to recession concerns in the world's biggest economic bloc while paring bets on a rate hike next week from the European Central Bank.
Global oil prices were modestly higher in early trading, after hitting a 10-month high and closing over the $90 per barrel mark for the first time this year, following a extension of output cuts from Russia and Saudi Arabia.
Brent crude futures for November delivery, the global pricing benchmark, were last seen 58 cents higher on the session at $90.62 per per barrel. WTI contracts for November, meanwhile, gained 74 cents to trade at $87.43 per barrel.
Heading into the afternoon of the trading day on Wall Street the S&P 500 was marked 44 points, or 0.98% lower while the Dow Jones Industrial Average fell 294 points. The tech-focused Nasdaq was down 187 points thanks to the rise in Treasury yields.
In Europe, the region-wide Stoxx 600 extended its losing streak to a sixth consecutive session, falling 0.56% in Frankfurt trading to close at 454.35 points. In London, the FTSE 100 was down 0.16% on the session even as the pound retreated and energy stocks got a boost from higher oil prices.
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