As a number of companies lowered their earnings forecasts and bond yields rose yesterday, the US stock market traded in negative territory for nearly all of the session.
Tuesday saw a decline in US stock indices due to a string of poor earnings predictions from businesses such as Paypal and Apple supplier Skyworks.
Despite exceeding expectations in terms of revenue and earnings per share, PayPal's shares dropped 10.5% and were the leading decliners in both the S&P 500 benchmark index and the Nadaq Composite Index. However, the company lowered its margin prediction, which was enough for investors to dump the shares.
Shares of Skyworks Solutions dropped 6.9% after a lower-than-anticipated revenue and profit outlook for the current quarter was released.
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Investors, on the other hand, concentrated on discussions to break the debt ceiling deadlock. Since June 1 there have been worries that the government could default if Congress does not act to break the impasse.
As a result, investors sold bonds that were due to mature in early June, which caused short-term US Treasury bill and bond yields to spike dramatically. The yield on US 2-year bonds increased to 4.03%.
The stock market, which traded in negative territory for almost the entire session, was also affected by rising bond yields.
The US Dollar strengthened overall, but especially versus the Euro, as a result of the shorter-term market interest rates being higher. After a negative corrective move, the EUR/USD pair fell to the significant support area at 1.095.
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The release of the US Consumer Price Index (CPI) number for the month of April will be the sole focus of the market today. Headline CPI is predicted to be 5%, while Core CPI is expected to be 5.5% YoY. Even while the market expects the Federal Reserve will leave interest rates unchanged at its upcoming meeting, a significantly higher number might revive expectations for a further 25bp boost. The anticipation of a decline in interest rates at the end of the year, which is currently predicted by the interest rate curve, would instead be strengthened if the data were lower.
Sources: Bloomberg, Reuters
