Stocks edge higher with Treasury yields in holiday-shortened session

© Reuters. A woman uses a mobile phone in front of an electric board displaying the Nikkei stock average outside a brokerage in Tokyo, Japan June 14, 2023. REUTERS/Kim Kyung-Hoon/File photo

By Sinéad Carew

NEW YORK (Reuters) - Wall Street stock indexes ended Monday's shorter session up slightly along with U.S. Treasury yields, as investors weighed up a mixed bag of economic data ahead of second-quarter earnings and uncertainty over the direction of central bank policy.

On Wall Street, Nasdaq led gains while the Dow was virtually unchanged after a choppy session where indexes struggled for direction ahead of the U.S. July 4 holiday. After earlier gains, European shares had closed lower on Monday.

U.S. manufacturing slumped further in June to levels last seen when the economy was reeling from the initial wave of the COVID-19 pandemic, according to a survey on Monday that also showed price pressures at the factory gate deflating.

However, U.S. construction spending rose more than expected in May as a severe shortage of houses boosted single-family homebuilding.

This was after a cooler U.S. inflation reading on Friday had caused all three indexes to rally sharply and saw the tech-heavy Nasdaq make its biggest first-half gain in 40 years. Apple (NASDAQ:AAPL) closed down 0.8% on Monday after closing Friday's session with a $3 trillion market valuation.

Banks shares closed higher in the first trading day of the second half of the year, after a rough start to 2023, with the S&P 500 bank index up 1.5% as they passed stress tests by regulators and then raised their dividends.

"The trading you see today is a mix of some people speculating that the previous six-month worst performers will catch up and others speculating that the leaders in the first half will continue to outperform," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

Tesla (NASDAQ:TSLA) was by far the biggest contributor to the S&P 500 after it announced record second-quarter vehicle deliveries, beating estimates as price cuts and U.S. federal credits made its electric vehicles more affordable.

"We could be in for a volatile month of July because we're not sure of the direction of the economy and Fed policy over the next few months and corporate earnings starting to come out in a couple of weeks," said Tuz.

In equities, the Dow Jones Industrial Average rose 10.87 points, or 0.03%, to 34,418.47, the S&P 500 gained 5.21 points, or 0.12%, to 4,455.59 and the Nasdaq Composite added 28.85 points, or 0.21%, to 13,816.77.

Still, MSCI's world equity index earlier hit its highest level in just over two weeks, while the pan-European STOXX 600 index also hit a two-week peak closing down.

The pan-European STOXX 600 index lost 0.21% while MSCI's gauge of stocks across the globe gained 0.31%.

Emerging market stocks rose 1.58%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.46% higher, while Japan's Nikkei added 1.70%.

U.S. Treasury yields rose modestly in light trading on Monday, reversing course after briefly losing ground after economic data showing a continued slump in the manufacturing sector continues to slump.

Earlier, a widely watched section of the U.S. Treasury yield curve hit its deepest inversion since the high inflation era of Fed Chairman Paul Volcker, reflecting financial markets' concerns that an extended Federal Reserve rate hiking cycle will tip the United States into recession.

Benchmark 10-year notes were up 3.9 basis points to 3.858%, from 3.819% late on Friday. The 30-year bond was last up 2 basis points to yield 3.8742%. The 2-year note was up 6.7 basis points to yield 4.9442%.

The dollar was little changed against a basket of major trading currencies and gained against a yen that's under intervention watch after the Japanese finance minister warned last week of excessive moves in the currency market.

The dollar index rose 0.039%, with the euro down 0.01% to $1.0909.

The Japanese yen weakened 0.26% versus the greenback at 144.70 per dollar, while Sterling was last trading at $1.2684, down 0.16% on the day.

Key U.S. data this week include the June payrolls report. Median forecasts are for the unemployment rate to fall slightly to 3.6%, while jobs are seen up 225,000 after May's surprisingly strong 339,000.

Earlier, Japan's Nikkei had closed at its highest level in 33 years. A Bank of Japan survey showed business sentiment improved in the second quarter, while the Caixin manufacturing survey dipped to 50.5, from 50.9 in May, showing a slowdown in China's factory activity. That slightly beat market forecasts, but underlined the weakening economic trend.

Oil prices settled down on Monday after rallying earlier in the day as worries about a slowing global economy and possible U.S. interest-rate hikes outweighed supply cuts announced for August by top exporters Saudi Arabia and Russia.

U.S. crude settled down 1.2% at $69.79 per barrel and Brent fell 1.01% to $74.65.

Gold prices were virtually unchanged on Monday as weaker economic readings cast doubts over whether the Federal Reserve would stick to its hawkish policy outlook.

Spot gold added 0.1% to $1,921.19 an ounce. U.S. gold futures fell 0.01% to $1,921.00 an ounce.