US stocks cut early losses by more than half, though the S&P 500 Index remained on track for its first decline of the year as rate-sensitive shares slumped. Treasury yields rose and the dollar fell after Bloomberg reported Chinese officials were said to be wary of American government debt.
Financial shares led rebound in American equities on speculation higher Treasury yields will boost profits, with the 10-year rate above 2.58 percent ahead of a note auction. Utilities and real-estate shares paced losses. Gold pared gains and the euro’s advanced slowed as markets digested news that China is considering scaling back Treasury purchases. West Texas oil rose past $63 a barrel after US government data showed inventories fell.
Reduced asset purchases by the world’s top central banks, rising commodity prices and looming US debt sales all support the case for higher bond yields, but until now they have proved resilient. The move in benchmark Treasuries— into what bond veteran Bill Gross declared a bear market—has left traders weighing where yields will go from here and what impact the change will have on other assets.
Billionaire bond manager Jeffrey Gundlach forecast in a year-ahead outlook webcast that the S&P 500 will end the year with a negative return after a “pretty decent run” early in the year. Others, including CLSA Ltd. CEO Jonathan Slone, argued equity markets have enough momentum to keep rising.
In Asia, the yen climbed for a second day as traders unwound short positions in the wake of the Bank of Japan paring back purchases of ultra-long dated bonds. China’s central bank weakened its daily fixing on the yuan by the most since September, one day after a report showed it has adjusted its currency-fixing mechanism, a move interpreted as an embrace of greater fluctuation in the exchange rate.
US inflation data are forecast to show price pressures remain muted for now, giving hawks little reason to argue for faster tightening. St. Louis Fed bank President James Bullard and head of the New York Fed Bill Dudley are among central bankers scheduled to speak.
A reading on China’s money supply is expected in coming days. JPMorgan Chase & Co. and Wells Fargo & Co. are due to report earnings on Friday.
The S&P 500 fell 0.2 percent to 2,746.26 at 11:43 am in New York, halting a six-day rally that was the longest since October. Real-estate firms and utilities that act as rate proxies fell the most. Semiconductors also slumped. The Stoxx Europe 600 Index sank 0.5 percent, the largest decrease in three weeks. The MSCI All-Country World Index retreated for the first time in seven days. The MSCI Emerging Market Index lost 0.5 percent. The MSCI Asia Pacific Index increased 0.2 percent to a record with its seventh straight advance.
The Bloomberg Dollar Spot Index fell 0.4 percent, the biggest slip in more than a week. The euro climbed 0.5 percent to $1.1996, the largest increase in a week. Britain’s 10-year yield climbed one basis point to 1.292 percent.