Picture: ISTOCK
Picture: ISTOCK

New York — The dollar and US treasury yields jumped on Tuesday following US data showing a rise in monthly US retail sales, weighing on stocks that were also undercut by renewed worries over global trade frictions.

The yield on the benchmark US 10-year treasury note touched its highest since July 2011, while the dollar hit its highest point of the year against a basket of currencies. Wall Street’s main stock indices slumped, with investors concerned that rising bond yields would hurt stock valuations.

US retail sales rose moderately in April as rising petrol prices cut into discretionary spending, but consumer spending appeared on track to accelerate after slowing sharply in the first quarter.

The US commerce department said retail sales rose 0.3% last month, while data for March was revised up to show sales surging 0.8% instead of the previously reported 0.6%. The data indicated consumer spending is stronger than expected by the market, said Jon Mackay, investment strategist at Schroders North America in New York. "The implication is that inflation has more upside potential, which means the [US Federal Reserve] is more likely than not to hike four times this year, versus what the market was pricing in a month ago, which is two to three times."

The benchmark government yield eclipsed 3.05%, blowing through the key psychological level of 3% it hit in late April for the first time in four years. Benchmark 10-year notes last fell 17/32 in price to yield 3.0576%, from 2.995% late on Monday.

The dollar index, tracking it against six major currencies, rose 0.69%, with the euro down 0.61% to $1.1852.

"The resurgent tone for the dollar is largely due to, number one, the move higher in treasury bond yields across the curve; and number two, the relatively solid data we saw on retail sales," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington DC

After improved trade sentiment helped stocks on Monday, equities were again jostled by developments involving US-China talks. Earlier on Tuesday, US ambassador to China Terry Branstad said the US wanted a timetable on how China would open up its markets to US exports, with the two countries still not close to resolving trade frictions.

"A little bit of today’s jitters are related to a hangover to yesterday’s wrongly placed exuberance that a trade deal was imminent, and the reality is we are in for a long slugfest between the US and China," Mackay said.

On Wall Street, the Dow Jones Industrial Average fell 197.2 points, or 0.79%, to 24,702.21, the S&P 500 lost 19.78 points, or 0.72%, to 2,710.35, and the Nasdaq Composite dropped 73.24 points, or 0.99%, to 7,338.08.

Home Depot shares fell 1.7% after the home improvement chain missed Wall Street’s sales forecast.

The pan-European FTSEurofirst 300 index edged up 0.17%. German growth halved in the first quarter of the year due to weaker exports and less state spending, as disputes with the US over trade and Iran’s nuclear deal clouded the outlook for Europe’s biggest economy.

MSCI’s gauge of stocks across the globe shed 0.9%. Oil prices hovered around multi-year highs, supported by concerns that US sanctions on Iran are likely to restrict crude oil exports from one of the biggest producers in the Middle East. US crude fell 0.07% to $70.91 a barrel and Brent was last at $78.94, up 0.91% on the day.

Reuters

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