Wall Street ends lower, Treasury yields gain as strong data cools rate-cut hopes

US stock market: US stocks followed their European counterparts to a lower close on Wednesday and US Treasury yields resumed their uphill climb as robust economic data chilled bets that the Federal Reserve could begin reducing its policy rate as early as March.

All three major US indexes finished the session lower, with interest rate-sensitive momentum stocks weighing heaviest on the tech-heavy Nasdaq. The prospect of forestalled rate cuts helped US Treasury yields build on recent gains.

The Commerce Department's December retail sales report (USRSL=ECI), opens new tab painted a portrait of a healthy consumer - responsible for about 70 per cent of the US economy - who has been able to weather the dual storms of hot inflation and restrictive monetary policy.

"We had news that the US consumer continues to be quite healthy, but that has increased anxiety that the Fed’s first rate cut could potentially be pushed to May from March," said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. "Yields are moving higher on the strong retail sales numbers as well, adding to near-term worries."

At last glance, financial markets are pricing in a 53.8 per cent probability of the Fed cutting its key policy rate by 25 basis points in March, down from 63.l per cent on Tuesday, according to CME's FedWatch tool.

The Dow Jones Industrial Average (.DJI), opens new tab fell 94.45 points, or 0.25 per cent, to 37,266.67, the S&P 500 (.SPX), opens new tab lost 26.77 points, or 0.56 per cent, to 4,739.21 and the Nasdaq Composite (.IXIC), opens new tab dropped 88.73 points, or 0.59 per cent, to 14,855.62.

European shares ended sharply lower, sliding 1.1 per cent as hawkish commentary from European Central Bank (ECB) officials dampened rate cut hopes and underwhelming economic data from China curbed investor risk appetite.

"When the second-largest economy in the world disappoints again on GDP growth that only adds to the global jitters," Detrick added. "The weakness in China potentially spills over more into Europe than it does to the United States." The pan-European STOXX 600 index (.STOXX), opens new tab lost 1.13 per cent and MSCI's gauge of stocks across the globe (.MIWD00000PUS), opens new tab shed 0.88 per cent.

Emerging market stocks lost 2.13 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opens new tab closed 2.24 per cent lower, while Japan's Nikkei (.N225), opens new tab lost 0.40 per cent. US Treasury yields were pressured higher by the surprisingly strong retail sales print combined with an unexpected rise in UK inflation. Benchmark 10-year notes last fell 9/32 in price to yield 4.1 per cent, from 4.066 per cent late on Tuesday.

The 30-year bond last fell 5/32 in price to yield 4.3125 per cent, from 4.305 per cent late on Tuesday. The dollar advanced, touching a fresh one-month high against a basket of world currencies after the solid retail sales report suggested US economic resilience, reining in hopes of an interest rate reduction in March. Soft economic data from China also supported the safe haven currency.

The dollar index (.DXY), opens new tab rose 0.03 per cent, with the euro up 0.06 per cent to $1.088. The Japanese yen weakened 0.65 per cent versus the greenback at 148.19 per dollar, while sterling was last trading at $1.2681, up 0.36 per cent on the day. US crude prices reversed course to settle higher after supply jitters arising from simmering tensions in the Middle East offset softened demand worries on the heels of China's shakier-than-expected GDP report.

US crude oil rose 0.22 per cent to settle at $72.56 per barrel, while Brent settled at $77.88 per barrel, down 0.52 per cent on the day. Gold prices plunged to a more than one-month low on waning expectations of a March interest rate cut. Spot gold dropped 1.1 per cent to $2,005.70 an ounce.