Stocks decline from record highs with US inflation data eyed

By Chuck Mikolajczak

NEW YORK (Reuters) -A gauge of global stocks was lower for a second straight session on Monday, retreating further from a record high as investors braced for U.S. inflation data this week which could heavily influence the Federal Reserve’s path of interest rates.

Stocks have hit multiple record highs this year, and declined on Friday following a mixed U.S. payrolls report did little to alter expectations for the Fed to begin cutting rates in June.

Attention now turns to the U.S. inflation data due on Tuesday, with expectations for a monthly increase of 0.4% and 3.1% on an annual basis.

The Dow Jones Industrial Average fell 180.11 points, or 0.46%, to 38,546.22, the S&P 500 lost 19.01 points, or 0.35%, to 5,105.57 and the Nasdaq Composite lost 27.01 points, or 0.17%, to 16,060.50.

As equities have steadily ascended to new heights, many factors such as valuation and sentiment surveys have begun indicating stocks are likely to see a pullback, said Sam Stovall, chief investment strategist at CFRA Research in New York.

“It just seems that you know we’re getting a little bit too optimistic we’re due for a digestion of gains.

“The market’s vulnerable to a catalyst of correction and that catalyst could be inflation numbers, could be comments by the Fed saying, ‘well, Gee, maybe we won’t start cutting rates at all this year because inflation remains elevated.’ Maybe we continue to see reduced earnings expectations for 2024.”

MSCI’s gauge of stocks across the globe fell 4.17 points, or 0.54%, to 767.13 and was on track for its first consecutive daily declines in nearly a month.

The STOXX 600 index fell 0.53%, while Europe’s broad FTSEurofirst 300 index fell 10.23 points, or 0.51%.

The Fed is scheduled to release its next policy statement on March 20 and investors have all but ruled out a cut, with expectations at 97% the Fed will stand pat on rates, according to CME’s FedWatch Tool.

Last week, comments from Fed Chair Jerome Powell and European Central Bank policymakers buoyed expectations interest rate cuts will begin this summer. Expectations for a cut of at least 25 basis points (bps) at the June meeting are currently above 70%.

The dollar index gained 0.21% at 102.90, with the euro down 0.16% at $1.0919.

The Japanese yen strengthened 0.01% against the greenback at 147.02 per dollar. The yen had weakened from earlier levels after Reuters reported that a growing number of Bank of Japan policymakers are warming to the idea of ending negative interest rates this month.

In addition, data released on Monday showed Japan was not in recession after economic growth was revised up to an annualized 0.4% for the December quarter.

The yield on benchmark U.S. 10-year notes rose 0.4 basis points to 4.092%, from 4.088% late on Friday. The 2-year note yield, which typically moves in step with interest rate expectations, rose 3.3 basis points to 4.5193%.

Oil prices fell, building on last week’s declines as as persistent geopolitical concerns in the Middle East and Russia collide with jitters about softening demand in China. U.S. crude lost 1.23% to $77.05 a barrel and Brent fell to $81.36 per barrel, down 0.88% to on the day.

In cryptocurrencies, bitcoin gained 5.36% at $72,109.75 after hitting a record $72,398.

(Reporting by Chuck Mikolajczak, Editing by Angus MacSwan)