U.S. Stocks Slide Amid Fed Talk, Trade Tensions: Markets Wrap

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U.S. stocks fell the most in more than three weeks as Federal Reserve Chairman Jerome Powell warned the downside risks to the economy have increased and Trump administration officials signaled a trade deal at the Group of 20 meeting is unlikely. Treasuries and the dollar advanced.

The S&P 500 fell for a third-straight session, the longest streak since May 9, as Powell reiterated the case for somewhat lower interest rates, but stopped short of signaling a cut was imminent. Markets have been pricing in a reduction of nearly 50 basis points in July. St. Louis Fed President James Bullard said a cut of that magnitude seemed unwarranted.

Tech shares led losses, with the Nasdaq 100 falling more than 1.7%, after a senior Trump administration official told Bloomberg the U.S. won’t accept further conditions on tariffs as part of reopening negotiations and no detailed trade deal is expected from the leaders’ summit.

The two-year Treasury was little changed around 1.73%, while the 10-year dropped below 2%, a level that until last week it hadn’t breached in three years. The dollar rose for the first time in six sessions.

Treasury 10-year yields fall below 2%

With stress between the U.S. and Iran building and the White House apparently playing down hopes of a trade breakthrough when Trump and China’s Xi Jinping meet this week, investors have edged away from risk assets following the recent central bank-fueled rally. The market has been betting the Fed will produce deep cuts to interest rates this year, and comments by officials Tuesday highlighted investor sensitivity to any hints that may not happen.

There’s “the short-term headlines related to people watching the G-20 and the potential for any news related to the US-China negotiations. That’s one piece that in the shorter run is making the markets a little uneasy. The other one is related to the geopolitical tensions with Iran,” said Omar Aguilar, the chief investment officer for equities at Charles Schwab Investment Management. “The bigger picture still drives the markets, which is we have lower interest rates coming up and the market continues to place a big bet on a July rate cut by the Fed.”

Elsewhere, Drugmaker Allergan surged after agreeing to be bought by AbbVie Inc. Bitcoin extended its gains through $11,000. West Texas oil edged lower as investors weighed escalating tensions between the U.S. and Iran against the possibility of OPEC+ extending production cuts.

St. Louis Fed President James Bullard says a 50-basis-point rate cut is "overdone."

(Source: Bloomberg)

Here are some key events coming up:

  • MSCI Inc. announces results of its 2019 Market Classification Review on Tuesday, including whether Kuwait gets upgraded from frontier to emerging-market status.
  • The Group of 20 summit is in Osaka, Japan on Friday and Saturday.

These are the main moves in markets:

Stocks

  • The S&P 500 Index fell 0.95%, the biggest decline since May 31, as of 4 p.m. New York time.
  • The Stoxx Europe 600 Index dipped 0.1%.
  • The MSCI Emerging Market Index sank 0.8%.
  • The MSCI Asia Pacific Index decreased 0.4%.

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1%.
  • The euro dropped 0.3% to $1.1370, the first retreat in a week.
  • The British pound declined 0.4% to $1.2696.
  • The Japanese yen climbed 0.1% to 107.16 per dollar.

Bonds

  • The yield on 10-year Treasuries declined three basis points to 1.99%.
  • Germany’s 10-year yield fell two basis points to -0.31%, the lowest on record.
  • Britain’s 10-year yield dipped two basis points to 0.794%.

Commodities

  • West Texas Intermediate crude was little changed at $57.89 a barrel.
  • Gold increased 0.6% to $1,426.50 an ounce.

— With assistance by Cormac Mullen, and Samuel Potter