US Treasury yields lift, Wall Street slips as rates, China loom large

Wall Street was mixed in the first half of the trading day (Reuters file image)

Yields on longer-dated U.S. Treasury yields hit a 10-month high, while U.S. stocks struggled for solid footing in choppy trading as investors considered the prospects of longer-lasting high interest rates and a struggling Chinese economy.

Benchmark 10-year yields reached 4.312% in trading Thursday and tested October's 4.338%, and a surge beyond would see the highest yields since 2007.

A steady stream of stronger-than-expected economic data, coupled with Wednesday meeting minutes suggesting Federal Reserve officials are still focusing on containing inflation, boosted yields while putting a damper on stocks and other markets.

Minutes from the Fed's July rate-setting meeting released Wednesday showed policy makers were divided over the need for more rate increases, with some citing the risk to the economy of pushing hikes too far but most noting inflation remains a primary focus.

"We read in the Fed's minutes that officials are nervous about the unknown cumulative impact of monetary policy tightening to date. Tighter credit conditions will eventually dampen economic activity and markets are choppy from the uncertainty," said Jeffrey Roach, chief economist for LPL Financial.

On Thursday, the U.S. Labor Department reported the number of Americans filing new claims for jobless benefits fell in the last week, suggesting the still-tight labor market that could suggest the Fed's project to cool the economy remains ongoing.

"In short, the labor market is still strong but much more balanced than during the severe worker shortages of the early recovery from the pandemic," said Bill Adams, chief economist for Comerica Bank.

That report followed several earlier in the week that exceeded economist expectations, including U.S. retail sales, which all suggested the Fed may have to stick with higher rates for longer.

Wall Street was mixed in the first half of the trading day before dipping into lower territory amid this murky economic picture. The Dow Jones Industrial Average was down 0.25% and the S&P 500 fell 0.11%. The Nasdaq Composite dropped 0.3%.

MSCI's world index was down 0.34% on Thursday, having earlier dropped to its lowest level since July 6.

In currency markets, the dollar index, which tracks the greenback versus a basket of six currencies, was relatively flat, climbing 0.03% to 103.405.

In contrast to signs of persistent U.S. economic strength, China also loomed large with investors as data and turmoil in the property sector painted a gloomy picture of the nation's post-pandemic recovery.

The latest development was embattled asset manager Zhongzhi Enterprise Group saying it will conduct a debt restructuring, a further sign of turmoil in China's $3 trillion shadow banking sector.

However, recent moves by China's central bank to keep liquidity reasonably ample and maintain "precise and forceful" policy to support the economy did help boost some markets, including oil, which had seen sizeable declines in the last several days on concerns of reduced Chinese demand.

Brent crude was last up 1.02% at $84.3 a barrel. U.S. crude jumped 1.37% at $80.47 per barrel.