As 10-year Treasury yields hit their highest in almost 10 months on Tuesday, following a surprisingly racy U.S. retail sales readout for July, Wall St stocks swooned again - with the S&P500 recording only its third daily drop of more than 1% over the past three months.
The sales update prompted Goldman Sachs to raise its third-quarter U.S. gross domestic roduct tracking estimate by a whopping seven-tenths of a percentage point to a 2.2% annualized rate - almost as fast as the 2.4% growth rate in the April-June quarter.
Overseas news of record British wage growth and sticky core inflation and a re-acceleration of Canadian headline inflation all added to the mood over the past 24 hours.
But even though red-hot U.S. retail demand may raise concerns about the extent of further disinflation and any hopes of Federal Reserve rate cuts over the horizon, it was accompanied by more downbeat soundings from the U.S. housing market and manufacturing sentiment.
July data on industrial production later on Wednesday may reflect more of the latter.
As to Fed thinking, minutes from its most recent policy meeting are also due out today - but Minneapolis Fed chief Neel Kashkari insisted it was still too early to say the central bank's rate rise campaign was over. "I'm not ready to say that we're done."
But Treasury yields have come off the boil ahead of today's session, and 10-year yields slipped back below 4.2% - in part as oil prices retreated further on China's deepening economic problems. After a slew of dour retail, industrial and property investment numbers earlier this week, China reported on Wednesday that home prices fell for the first time this year.
That saw Chinese and emerging market stocks fall further and the yuan hit a new low for the year as the yield premium on 10-year U.S. Treasuries over Chinese equivalents hit its highest in 16 years.
But U.S. Treasuries were also calmed on Wednesday by news that foreign investors increased their holdings in June - albeit before the latest wobble in prices.
Steadier bonds today have helped a modest uptick in S&P500 futures ahead of the bell - though pressure on banks on Tuesday was another background fallout from ratings firm Fitch's recent decision to remove the United States' AAA sovereign rating. Fitch said it could downgrade multiple big banks as a result and that hit shares of JPMorgan Chase, Bank of America and others.
Elsewhere, the dollar fell back a little in line with softer bond yields - with sterling one of the main beneficiaries as the combination of Wednesday's stubborn UK core inflation reading for July and the wage picture have pushed Bank of England rate rise expectations higher.
New Zealand's central bank left rates on hold, but a hawkish message suggested rates stay high and the kiwi dollar got a lift from that.
