Strong US economic data increases fears of higher-for-longer interest rates
US stocks retreated on Monday amid the resurgent worries over the conflict in the Middle East after Iran launched aerial strikes on Israel. Higher yields in the US bond market added to the selling pressure on stocks. Meanwhile, fresh data showed retail sales increased 0.7% in March, suggesting consumption remains solid despite the elevated inflation. Retail sales increased considerably faster than the consensus forecast for a 0.3% rise. The Dow Jones lost 0.65%, the S&P 500 slipped 1.2%, and the Nasdaq Composite tumbled 1.79% as technology stocks dropped.
Following suit, Asian equities retreated on Tuesday. The Shanghai Composite index in China lost 1.65% even though the official data showed that the economy grew at a faster-than-forecast annual rate of 5.3% in the first quarter of the year. In quarterly terms the economy expanded at a 1.6% pace. The Hang Seng in Hong Kong lost 2.14%. Tokyo’s Nikkei 225 fell 1.88% to its lowest level in almost two months, and Australia’s S&P/ASX 200 fell 1.81%, marking its fourth straight day of losses. The overall mood remained largely risk-off as stronger-than-expected US retail sales data increased fears of higher-for-longer interest rates.
In Europe, markets opened sharply lower on Tuesday, with the regional Stoxx 600 index down 1.4% in early deals as geopolitical tensions rose following Iran’s missile attack on Israel over the weekend. Mining stocks led losses, down 2.2%, as financial services fell 2.1%. US stock index futures were little changed in early pre-market deals after a losing day for the major benchmarks.
Meanwhile, the US dollar extended the ascent in a risk-off environment and as the yield on the 10-year Treasury rose above the key 4.6% level to touch its highest point since mid-November. The USD index rose to 106.44 before retreating partially amid some local profit-taking in recent trading. The greenback stays firmly above the 106.00 figure due to risk aversion in combination with strong US economic reports that make investors doubt Fed’s intention to start cutting rates this year.
