By Chuck Mikolajczak
NEW YORK (Reuters) – A gauge of global stocks was on track for its biggest daily percentage drop in two weeks after a sharp decline in Tesla shares while softening U.S. economic data and growing worries about the debt ceiling sent Treasury yields lower.
On Wall Street, shares of Tesla sank 7.20% after the electric vehicle maker missed gross margin forecasts and pledged further price cuts.
GRAPHIC: Tesla earnings http://fingfx.thomsonreuters.com/gfx/rngs/TESLA-RESULTS/010010144FX/tesla.jpg
The drop put Tesla shares on track for their biggest daily percentage drop since Jan. 3 and pulled the S&P consumer discretionary sector down 0.75%.
Economic data showed weekly jobless claims rose last week, indicating the labor market may be starting to show signs of slowing as the lag effect of multiple rate hikes by the Federal Reserve takes hold.
In addition, a gauge of manufacturing activity in the mid-Atlantic region plunged to its lowest level in three years in April while existing home sales fell in March.
GRAPHIC: Jobless claims https://www.reuters.com/graphics/USA-STOCKS/akpeqxgzlpr/joblessclaims.png
The slowing data comes after Federal Reserve Bank of New York President John Williams said late on Wednesday the level of inflation remains problematic, and the central bank will act to lower it.
“The market is going to go lower, it will struggle, it’s tired, the hint of hikes beyond May are now becoming more of the narrative just because (the Fed) wants to leave the door open,” said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida. “The market is kind of struggling here because the data is starting to show it and the rest of earnings season is going to be challenging.”
The Dow Jones Industrial Average fell 78.06 points, or 0.23%, to 33,818.95, the S&P 500 lost 16.44 points, or 0.40%, to 4,138.08 and the Nasdaq Composite dropped 40.74 points, or 0.34%, to 12,116.49.
On top of the slowing economic data and rate hike concerns, JP Morgan said it expects the debt ceiling to become an issue as soon as next month, and sees a “non-trivial risk” of default.
Meanwhile, analysts at JPMorgan said they expected the U.S. debt ceiling to become an issue as early as next month. They also cited a “non-trivial risk” of a technical default on Treasuries, joining analysts at Goldman Sachs and Citi in anticipating an earlier debt ceiling deadline.
The pan-European STOXX 600 index lost 0.14% and MSCI’s gauge of stocks across the globe shed 0.22%. MSCI’s index was on pace for its biggest one-day percentage decline since April 5.
U.S. Treasury yields moved lower after the data, along with the concerns about Fed hike expectations and the rising debt ceiling worries. Markets are now pricing in an 86% chance of a 25 basis point hike at the May 2-3 meeting, up from 83.3% on Wednesday, according to CME’s FedWatch Tool.
Another round of multiple Fed officials are expected to speak on Thursday, before entering a blackout period on April 22 ahead of the May policy announcement.
The yield on 10-year Treasury notes was down 6.6 basis points to 3.536%.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 10.4 basis points at 4.161%.
In currency markets, the greenback was lower after the data, as the dollar index fell 0.255%, with the euro up 0.16% to $1.0972.
The Japanese yen strengthened 0.49% versus the greenback at 134.08 per dollar, while Sterling was last trading at $1.2449, up 0.09% on the day.
Despite the dip in the dollar, oil prices were lower on concerns about a slowing economy and continued rate hikes sapping demand.
U.S. crude recently fell 2.51% to $77.17 per barrel and Brent was at $81.26, down 2.24% on the day.
(Reporting by Dhara Ranasinghe and Naomi Rovnick in London. Additional reporting by Ankur Banerjee in Singapore; Editing by Sharon Singleton, Will Dunham and Alex Richardson)
