Stocks slide, dollar gains as rate cut outlook dims

This week's calendar includes the Personal Consumption Index, a favorite inflation benchmark of the US Federal Reserve and Chair Jerome Powell (WIN MCNAMEE)
This week's calendar includes the Personal Consumption Index, a favorite inflation benchmark of the US Federal Reserve and Chair Jerome Powell (WIN MCNAMEE)

Stock markets fell Wednesday as investors locked in profits after indicators and comments from central bankers further dented hopes for interest rate cuts.

A forecast-beating report Tuesday on US consumer confidence was the latest evidence that the economy is not slowing fast enough to allow the Federal Reserve to cut borrowing costs any time soon.

Then a higher-than-expected inflation report in Australia early Wednesday soured the mood in Asian trading.

The dollar gained on the higher for longer rates outlook.

US Treasury yields -- a proxy for interest rates -- moved higher after there was weak demand for notes at a Treasury auction Tuesday.

"The rise in yields reflects sticky inflation concerns and higher interest rate expectations after stronger-than-expected US consumer confidence data yesterday and following hawkish commentary from Federal Reserve officials," said Fiona Cincotta, a market analyst at StoneX.

All three major US indexes retreated, with the Dow dropping the most at 1.1 percent. That left it at 38,441.54 after the index topped 40,000  earlier this month.

On Wednesday, the Fed's latest "beige book" of economic conditions pointed to a somewhat gloomier outlook, although economic activity remained positive from early April to mid-May.

The next major US indicator is Friday's Personal Consumption Index, the Federal Reserve's favourite inflation index.

"Friday's PCE report will be the most important release this week," said Collin Martin, director of fixed income strategy at the Schwab Center for Financial Research.

"We believe inflation is sticky and not stuck, but a slower pace of disinflation could end up resulting in fewer rate cuts down the road," he said.

Friday also sees eurozone inflation data for May, and a further cooling would reaffirm expectations of a June rate reduction from the European Central Bank.

Data on Wednesday showed inflation in Germany, Europe's biggest economy, accelerated to 2.4 percent in May, though analysts said it was due to one-off factors and would not affect the ECB's rate-cut move.

Still, the main stock markets in Europe all closed lower, following on from weak markets in Asia and New York's gloomy opening.

Among individual stocks, Anglo American shares fell 5.2 percent in London after the mining giant rejected a request from BHP to extend a Wednesday deadline for takeover talks, with BHP saying later it would not be making another offer.

Expectations that interest rates could drop earlier in Europe than in the US helped firm up the dollar against most of its peers.

In commodity trading, oil prices initially rose for what would have been the fourth day after a bulk carrier was attacked in the Red Sea, a key waterway for tankers shipping crude. But prices later retreated.

- Key figures around 2050 GMT -

New York - Dow: DOWN 1.1 percent at 38,441.54 (close)

New York - S&P 500: DOWN 0.7 percent at 5,266.95 (close)

New York - Nasdaq Composite: DOWN 0.6 percent at 16,920.58 (close)

London - FTSE 100: DOWN 0.9 percent at 8,183.70 points (close)

Paris - CAC 40: DOWN 1.5 percent at 7,935.03 (close)

Frankfurt - DAX: DOWN 1.1 percent at 18,473.29 (close)

EURO STOXX 50: DOWN 1.3 percent at 4,963.20 (close)

Tokyo - Nikkei 225: DOWN 0.8 percent at 38,556.87 (close)

Hong Kong - Hang Seng Index: DOWN 1.8 percent at 18,477.01 (close)

Shanghai - Composite: UP 0.1 percent at 3,111.02 (close)

Dollar/yen: UP at 157.70 from 157.17 yen on Tuesday

Euro/dollar: DOWN at $1.0804 from $1.0857

Pound/dollar: DOWN at $1.2702 from $1.2762

Euro/pound: DOWN at 85.03 from 85.07 pence

West Texas Intermediate: DOWN 0.8 percent at $79.23 per barrel

Brent North Sea Crude: DOWN 0.76 percent at $83.60 per barrel