Updated at 12:10 pm EDT
U.S. stocks slumped lower Tuesday, while Treasury bond yields pushed further into year-to-date highs, as investors continued to grapple with the implications of solid domestic growth prospects against increasing concern about China’s post-covid recovery.
Central bank officials in China on Tuesday slashed two key interest rates, including a benchmark one-year bank lending levy. The move followed a series of softer-than-expected July retail-sales and industrial-output data that underscored the ongoing weakness in the world’s second-largest economy.
“China’s production, consumption and investment slowed more than expected in July despite efforts to boost domestic demand, data released by the National Bureau of Statistics on Tuesday showed,” said Saxo Bank strategists.
“Coming on top of whole host of weaker-than-expected data recently, the People’s Bank of China responded by unexpectedly cutting two key policy rates for a second time in three months.”
The moves tipped Asia stocks into the red and flowed through into the European session. That’s as investors worried that China’s efforts to both revive growth and cover up its failings — the government suspended publication of youth unemployment data — would lead to further market disruption.
U.S. stocks are also looking softer, with investors taking their cue from July retail-sales data published prior to the start of trading while they track another move higher in Treasury bond yields linked in part to the economy’s surprising summer resilience.
July retail sales rose 0.7% to a collective $696.4 billion, the Commerce Department said on Tuesday, nearly double the Wall Street consensus forecast of a 0.4% gain.
The closely tracked control group number, which excludes autos, building materials, office suppliers, gas station sales and tobacco and feeds into the government’s GDP calculations, rose 1%, firmly ahead of analysts’ estimates of a 0.2% gain.
The Atlanta Fed’s GDPNow forecasting tool suggests current quarter growth of around 4.1%, while yesterday’s New York Fed Survey of Consumer Expectations showed year-ahead inflation expectations fell to a 2021 low of 3.5%, with labor market sentiment and household finance prospects also improving.
Still, with the Treasury planning to raise more than $103 billion in coupon bond sales this quarter, and stuffing $132 billion in T-bill sales into the market yesterday, bond yield are continuing their upward march even in the face of softening inflation prospects.
Benchmark 10-year note yields were pegged at a 2023 high of 4.274% in early New York trading before retreating to 4.187% while 2-year notes were last seen changing hands at 4.935% after breaching the 5% mark earlier in the session.
Heading into the middle of the trading day on Wall Street, the S&P 500 was marked 34 points lower while the Dow Jones Industrial Average fell 305 points despite stronger-than-expected earnings from component Home Depot (HD) – Get Free Report.
Bank stocks were notable early decliners, with JPMorgan Chase (JPM) – Get Free Report falling 2.56% and Citigroup (C) – Get Free Report down 1.47%, following a warning from Fitch Ratings that big lenders could face credit downgrades.
The tech-focused Nasdaq, which notched its best session in two weeks on Monday, was down 93 points.
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