Stocks dip, yields rise on rate hike expectations

By Chuck Mikolajczak

NEW YORK (Reuters) – A gauge of global stocks slipped on Wednesday after back-to-back gains as investors digested the latest earnings reports, while Treasury yields climbed as British inflation data hardened expectations of further interest rate rises by central banks.

U.S. stocks were off their early lows on Wall Street with the slightly above the unchanged mark, although the tone was defensive with gains led by the utilities sector.

Also capping gains was a 4.14% drop in Netflix (NASDAQ:) after the streaming video company reported quarterly results, while Tesla (NASDAQ:) dipped 0.75% after the electric vehicle maker cut prices for the sixth time this year, with its earnings due after the closing bell.

The fell 65.17 points, or 0.19%, to 33,911.46; the S&P 500 gained 3.31 points, or 0.08%, to 4,158.18 and the added 26.00 points, or 0.21%, to 12,179.41.

Expectations for more hikes from central banks pushed yields higher after Britain reported a slight decline in inflation in March, but remained the only country in western Europe in double-digits. Euro zone inflation also eased, but underlying readings remained stubbornly high, Eurostat said.

The two-year gilt yield was down 0.2 basis points at 3.820% after hitting 3.877%, its highest since March 7.

The data solidifies expectations for more hikes from the Bank of England and European Central Bank (ECB), while market participants have largely priced in a 25-basis-point rate hike from the U.S. Federal Reserve at its May meeting, according to CME’s FedWatch Tool.

“There is kind of an acceptance in the market that rate hikes will continue for a little bit at least, and that buys time,” said JJ Kinahan, CEO of IG North America in Chicago.

“It seems like most people are coalescing around another 25 basis points so because of that, that gives you a few weeks of this kind of news before people are like uh-oh.”

The yield on was up 3.6 basis points to 3.608% after reaching 3.639%, its highest since March 22.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 7 basis points at 4.269%.

The rise in rates served to weigh on equities, as the slipped from a 14-month high while 100 closed off 0.13% after the inflation data.

The pan-European STOXX 600 index closed down 0.10% and MSCI’s gauge of stocks across the globe shed 0.16%.

A host of Fed speakers are scheduled to give commentary over the rest of the week, before the officials enter a blackout period on April 22 ahead of the central bank’s May 2-3 meeting.

The dollar also firmed on Fed hike expectations, showing signs of stabilizing after five straight weeks of declines.

The rose 0.197%, with the euro down 0.14% to $1.0956.

The Japanese yen weakened 0.43% versus the greenback at 134.70 per dollar, while sterling was last trading at $1.2439, up 0.12% on the day.

The dollar strength, in turn, helped curb crude prices, along with concerns that the Fed rate hikes could dent growth and drag demand.

recently fell 1.77% to $79.43 per barrel and was at $83.33, down 1.7% on the day.