U.S. stocks fell after a two-day rally and Treasuries dropped amid persisting worries about inflation and measures by central banks to contain it.
The S&P 500 stayed lower in choppy trading as gains in energy stocks and some social media shares partially offset broader market losses.
Benchmark Treasury yields hovered around the psychological threshold of 3%, while rates on German bunds rose to the highest since 2014 ahead of a pivotal European Central Bank policy decision.
Sentiment remains fragile on concerns rising rates will stifle economic growth and the outlook for corporate earnings.
The ECB Thursday is set to wind down trillions of euros of asset purchases in a prelude to a rate hike expected in July, while data on US consumer prices later in the week is expected to keep pressure on the Federal Reserve to hike rates.
“We’re in another environment where the Fed and the inflation outlook, in particular, continue to dictate the direction of the market,” Kara Murphy, CIO of Kestra Holdings, said by phone.
“And we still have a little ways to go – we know that the Fed is expected to have a couple of very large hikes in the not-too-distant future. Whether the market recovers from here or falls more depends on whether these hikes that are already built into the market do their job.”
US CPI data on Friday is expected to show inflation picked up in May from a month earlier, while slowing slightly from a year earlier but staying above the 8% level.
That’s likely to keep pressure on the Fed to stick to aggressive rate hikes.
Energy shares extended this year’s rally on Wednesday as oil gained after crude inventories in the largest storage hub and gasoline stockpiles dropped.
West Texas Intermediate futures rose about 1% to trade above $120 a barrel.
Meanwhile, the ECB Thursday is set to wind down trillions of euros of asset purchases in a prelude to a rate hike expected in July that will mark the end of eight years of negative interest rates.