Stocks fall with bond yields after US economic data

By Sinéad Carew

NEW YORK/ LONDON (Reuters) -A global equities gauge was lower on Thursday while bond yields turned lower with the dollar after U.S. economic data came in weaker than expected.

The U.S. economy grew more slowly than expected in the first quarter after downward revisions to consumer spending, according to a Commerce Department report which showed gross domestic product (GDP) growing at an annualized rate of 1.3% versus estimates for 1.6% and the 3.4% pace in the fourth quarter.

The U.S. dollar index lost ground following the data after rising to a two-week high the previous day, while Thursday’s decline in U.S. Treasury yields follows two straight days of gains driven by weak government debt auctions.

“The move down in yields reflects the reality that the economy is slowing,” said Jamie Cox, managing partner for Harris Financial Group. “The market is trying to front run Treasury refunding but then the reality sets in with the data.”

Also Cox pointed to an earnings report from Salesforce Inc, which sent that stock down more than 20% and weighed heavily on the technology sector, which was the biggest drag on the S&P 500.

On Wall Street at 10:51 a.m. (1451 GMT) the Dow Jones Industrial Average was down 386.44 points, or 1.01%, to 38,055.10, the S&P 500 was down 25.26 points, or 0.48%, to trade at 5,241.69, and the Nasdaq Composite was down 111.82 points, or 0.65%, to 16,810.46.

MSCI’s gauge of stocks across the globe fell 2.21 points, or 0.28%, to 781.95.

In Europe, the STOXX 600 index rose 0.56% after falling sharply on Wednesday when data showed German inflation rose slightly more than forecast in May. In Europe, investors are waiting for a key inflation reading for the euro zone, due on Friday.

And investors have also been waiting anxiously for the main event of the week – Friday’s April report on U.S. core personal consumption expenditures (PCE) price index, which is the Federal Reserve’s preferred inflation measure.

In Treasuries, yields slid after the data which kept expectations on track for the Fed to start cutting interest rates this year.

The yield on benchmark U.S. 10-year notes fell 6.2 basis points to 4.562% while the 2-year note yield, which typically moves in step with interest rate expectations, fell 5.2 basis points to 4.9331%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 37.3 basis points.

In currencies, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.45% to 104.66, with the euro up 0.38% at $1.0841. Against the Japanese yen, the dollar weakened 0.65% to 156.58.

In energy, oil prices were lower after the GDP data and ahead of crude stock piles data.

U.S. crude lost 0.63% to $78.7 a barrel and Brent fell to $82.86 per barrel, down 0.89% on the day.

Spot gold added 0.26% to $2,344.74 an ounce as the dollar and bond yields retreated. [GOL/]

(Reporting by Samuel Indyk and Rae Wee; Editing by Nick Macfie and Mark Potter)

Posted in Uncategorized