By Herbert Lash and Huw Jones
NEW YORK/LONDON (Reuters) -The dollar edged higher on Friday but global stock markets retreated on a report that showed U.S. consumer sentiment slumped to a six-month low in May, reinforcing bearish sentiment over talks in Congress about U.S. government finances.
Oil prices rose as the market balanced supply fears against renewed economic concerns in the United States and China, while gold was little changed as looming worries about a U.S. debt default kept bullion’s safe-haven appeal intact.
Longer-dated Treasury yields were on track to end the week lower – though the yield on benchmark 10-year notes was up 3.4 basis points to 3.431% – as confidence rose that the Fed will stop hiking rates at its next meeting in June.
Consumer sentiment tumbled 9% amid renewed concerns about the trajectory of the economy, with year-ahead expectations for the economy plummeting 23% in April, the University of Michigan’s preliminary reading of May showed.
“The market is climbing a wall of worry,” said Thomas Hayes, chairman and managing member of Great Hill Capital LLC in New York. “We’re going to worry about the debt ceiling for the next couple of weeks until they get their act together,” he said, referring to politicians.
MSCI’s U.S.-centric gauge of stocks across the globe shed 0.25%, but the pan-European STOXX 600 index rose 0.37% after upbeat results from Richemont underscored strength in the luxury sector.
Better-than-expected earnings and hopes for a soft landing have kept a floor underneath U.S. stocks, Hayes said.
“Forward estimates are turning up for a few weeks after going down incrementally every week for the last few months, he said. “You couple those earnings estimates starting to go up with a Fed on hold, and that’s a formula for good things to happen.”
On Wall Street, the Dow Jones Industrial Average fell 0.1%, the S&P 500 lost 0.18% and the Nasdaq Composite dropped 0.35%.
Britain’s economy grew in the first three months of the year – instead of recession that was being forecast in late 2022 – but recovery remains fragile.
Sterling fell 0.33% to $1.2468 on the day, while the dollar index rose 0.441%.
Analysts said investors are searching for fresh reasons to push markets out of their ranges as a generally positive earnings season draws to a close and the next batch of major central bank rate-setting meetings are a few weeks away.
“We have had an aggressively sideways moving market and people are looking for something to give it direction,” said Mark Tinker, chief investment officer at Toscafund asset management in Hong Kong.
The two-year Treasury yield, which often moves in step with interest rate expectations, was up 6.7 basis points at 3.973%.
A meeting between U.S. President Joe Biden and top lawmakers that had been scheduled for Friday has been postponed to early next week, with the IMF warning that a U.S. default would have “serious repercussions” for the U.S. economy.
U.S. data on Thursday added confidence that the Fed is almost certain to pause its rate hikes at its policy meeting in June, with futures markets continuing to price in cuts of about 78 basis points by the end of the year.
Next week, investors will be scrutinizing a batch of U.S. data for rate clues, with retail sales and industrial production figures. “The former should get a lift from robust auto sales, while the latter will be held back by falling production,” ING bank said.
CHINA LOSING STEAM
China’s economic recovery seems to be losing steam, with new bank loans tumbling in April, consumer prices rising at the slowest pace in more than two years and imports unexpectedly contracting, driving a plunge in commodity prices from copper and iron ore to oil.[O/R]
China’s blue-chips fell 1.3% and looked poised to lose 1.7% for the week, while Hong Kong stocks were down 0.5% on the day.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6% and was headed for a weekly decline of 1.2%.
Japanese shares outperformed, however, with the Nikkei climbing 0.9% to its highest level since November 2021, as investors cheered announcements of increased shareholder returns during earnings season. [.T]
Oil prices rose and were set to end the week flat after three weeks of decline.
U.S. crude recently fell 0.2% to $70.73 per barrel and Brent was at $74.80, down 0.24% on the day.
Spot gold dropped 0.2% to $2,011.80 an ounce.
(Reporting by Herbert Lash, additional reporting by Huw Jones in London, Stella QiuEditing by Edwina Gibbs, Mark Potter and Chizu Nomiyama)
