Highlights;
- US stock indexes declined Tuesday, with the S&P 500, Dow, and Nasdaq hitting multi-week lows.
- Higher bond yields and weak economic data weighed on markets.
- The 10-year T-note yield rose to 4.28% amid global inflation and fiscal concerns.
- Tariff disputes and Fed rate cut expectations were also key factors.
The S&P 500 Index ($SPX) (SPY) ended Tuesday with a -0.69% decline, while the Dow Jones Industrial Average ($DOWI) (DIA) dropped -0.55%. The Nasdaq 100 Index ($IUXX) (QQQ)fell -0.79%. September E-mini S&P futures (ESU25) slid -0.65%, and September E-mini Nasdaq futures (NQU25) were down -0.76%.
Stock indexes declined on Tuesday, with the S&P 500 and Nasdaq 100 hitting 1.5-week lows, and the Dow reaching a 1-week low. Rising bond yields, with the 10-year T-note yield climbing 5 basis points to 4.28%, contributed to the downturn, fueling risk-off sentiment. Global bond yields also rose amid concerns over government finances and lingering inflation risks.
Stocks held their losses after Tuesday’s US economic reports showed the August ISM manufacturing index rose less than expected and July construction spending fell for the third consecutive month.
The August ISM manufacturing index increased by 0.7 to 48.7, below expectations of 49.0. The ISM prices-paid sub-index unexpectedly dropped to 63.7, a 6-month low, contrary to forecasts of a rise to 65.0. US July construction spending declined -0.1% month-over-month, meeting expectations but marking the third straight monthly decline.
This week’s US economic calendar is packed. On Wednesday, July JOLTS job openings are expected to decrease by 64,000 to 7.373 million, and July factory orders are predicted to drop -1.4% month-over-month. The Fed’s Beige Book will also be released. Thursday will see the August ADP employment report, with expectations of an +80,000 increase, alongside initial unemployment claims projected to rise by +1,000 to 230,000. Q2 nonfarm productivity is expected to be revised to 2.7% from 2.4%, with unit labor costs revised downward to 1.4% from 1.6%. The August trade deficit is forecast to widen to -$78.0 billion from June’s -$60.2 billion. Friday will bring the August nonfarm payrolls report, expected to rise by +75,000, with the unemployment rate predicted to increase to 4.3%. Average hourly earnings are expected to grow +0.3% month-over-month and +3.7% year-over-year.
Tariffs Update
A federal appeals court ruled last Friday that President Trump exceeded his authority by imposing global tariffs without Congressional approval, though the tariffs remain in place during appeals. The case is likely headed to the Supreme Court. If implemented, average US tariffs could rise to 15.2%, up from 13.3%, and significantly higher than the 2.3% in 2024 before the tariffs were announced.
Federal funds futures indicate a 92% chance of a -25 basis point rate cut at the September 16-17 FOMC meeting, with a 51% chance of a second cut at the October 28-29 meeting.
Overseas Markets
Global stock markets were mixed on Tuesday. The Euro Stoxx 50 fell to a 3-week low, closing down -1.42%. China’s Shanghai Composite dropped -0.45%, while Japan’s Nikkei Stock 225 rose +0.29%.
Interest Rates
December 10-year T-notes (ZNZ5) ended Tuesday down -11.5 ticks, with the 10-year T-note yield rising +5.1 basis points to 4.279%.
T-note prices fell due to supply pressures, with $55 billion of corporate debt expected to be priced this week. Rising European government bond yields also weighed on Treasuries. The 10-year German bund reached a 5-month high of 2.801%, and the 10-year UK gilt rose to a 3.25-month high of 4.822%.
T-note prices rebounded slightly after US economic reports showed weaker-than-expected ISM manufacturing growth and a third consecutive decline in construction spending. The unexpected drop in the ISM prices-paid sub-index to a 6-month low also supported T-notes.
European government bond yields increased, with the 10-year German bund up +3.9 basis points to 2.786% and the 10-year UK gilt up +5.0 basis points to 4.800%. The Eurozone August CPI rose +2.1% year-over-year, matching expectations, with core CPI up +2.3%, exceeding expectations of +2.2%.
ECB officials signaled steady rates, with Executive Board member Schnabel citing inflation risks and Governing Council member Muller noting the economy’s resilience. Swaps indicate a 1% chance of a -25 basis point ECB rate cut at the September 11 meeting.
US Stock Movers
Source: https://www.nasdaq.com/articles/stocks-retreat-bond-yields-climb
