Wall Street slips, yields jump as US retail spending persists

The dollar index, which tracks the greenback versus a basket of six currencies, pared earlier gains to dip 0.29% to 102.89.

U.S. stocks opened lower Tuesday while government bond yields remained higher, as stronger-than-expected U.S. retail sales data bolstered concerns over the Federal Reserve’s efforts to tame inflation.

All three major U.S. equity indexes opened lower, after modest gains a day prior. The Dow Jones Industrial Average was down 0.6%, the S&P 500 fell 0.58% and the Nasdaq Composite dropped 0.47% in early trading.

The slide came after the U.S. Commerce Department reported that U.S. retail sales had increased by 0.7% in July, ahead of the 0.4% boost economists had anticipated.

The steady march of strong spending drove concerns about whether the Fed may be able to end its rate-hiking in its fight against inflation.

"Given the fact that we are so hyper-vigilant about the Fed and what their next step will be in September, it isn’t surprising that the market reacted with jitters, given that the retail sales number might indicate that the Fed would continue to raise rates," said Peter Anderson, founder of Andersen Capital Management in Boston.

U.S. 10-year Treasury yields hit 10-month highs, reaching as much as 4.274% earlier in the day before dipping back to 4.19%, while Germany’s benchmark 10-year bond yield rose to its highest since March as a selloff in bonds, driven in part by resilient U.S. economic growth, deepened.

Emerging markets remained in focus a day after Argentina devalued its currency by nearly 18%, while Russia’s central bank on Tuesday raised interest rates by 350 basis points at an extraordinary meeting following a fresh slide in the rouble.

The MSCI world equity index, which tracks shares in 45 nations, was last down 0.57%.

CHINA CUTS, RUSSIA HIKES

Cuts to China’s one-year loans to financial institutions, at 15 basis points, were the largest since the outset of the COVID pandemic. Industrial output and retail sales growth both slowed from a month earlier to a year-on-year pace of 3.7% and 2.5% respectively, missing expectations.

The yuan dropped to its lowest in 9-1/2 months, and sources told Reuters that China’s major state-owned banks stepped into the spot market to steady the currency.

The dollar index, which tracks the greenback versus a basket of six currencies, pared earlier gains to dip 0.29% to 102.89.

"Globally, markets are right to be concerned about where China's growth is going in the current quarters," said Chris Scicluna, head of research at Daiwa Capital Markets.

Russia’s central bank, meanwhile, hiked its key interest rate by 350 basis points to 12%, an emergency move to try to halt the rouble’s recent slide after a public call from the Kremlin for tighter monetary policy.

The rouble pared gains after the decision to stand 0.3% weaker at 98.00, but still significantly above lows near 102 on Monday which had not been hit since the early weeks after Russia invaded Ukraine.

Brent crude was down 1.21% at $85.23 per barrel, and spot gold prices dipped 0.28% to $1,902.60 an ounce.