DB Deutsche Bank Aktiengesellschaft

By Alexander Osipovich and Paul J. Davies 

Stocks fell as investors backed away from hopes that the Federal Reserve would aggressively cut interest rates to boost the economy.

Major U.S. stock indexes hit record highs last week before the Fourth of July holiday, but they tumbled after strong jobs data on Friday weakened the case for the Fed to cut rates at its next meeting.

The Dow Jones Industrial Average dropped 0.4% in early-afternoon trading on Monday, while the S&P 500 fell 0.5% and the tech-heavy Nasdaq Composite slid 0.9%.

Apple fell 2.1%, weighing on the Dow, after Rosenblatt Securities downgraded the iPhone maker to sell from neutral and predicted its outlook would deteriorate over the next six to 12 months.

Investors are awaiting Fed Chairman Jerome Powell's testimony on Capitol Hill on Wednesday and Thursday for hints of how he views the U.S. economy. Mr. Powell has been under pressure from President Donald Trump to cut rates.

Futures traders expect a 93% chance of a 0.25% rate cut at the U.S. central bank's July 31 meeting and a 7% chance of a 0.5% cut, according to Fed-funds futures traded on CME Group. Last month, traders put the odds of the bigger rate cut as high as 40%, but they have dialed back on such expectations amid signs of continued U.S. economic strength.

"Everybody is kind of wrapping their heads around the stronger-than-expected jobs report," said Ryan Detrick, senior market strategist at LPL Financial. "The 50-basis-point crowd has definitely been shot down."

The Labor Department is also set to release monthly core-inflation data on Thursday. Inflation has generally stayed below the Fed's 2% target during the past several years, but expectations for price increases picked up last month, according to a survey released Monday by the Federal Reserve Bank of New York. A higher-than-expected inflation number this week could bolster the case for Fed rate cuts.

Bond prices gained as investors bought safe-haven government debt. The 10-year U.S. Treasury yield fell to 2.032%, from 2.044% on Friday. Yields fall as prices rise.

Asian stocks posted steep declines, with the benchmark equity index in Shanghai dropping 2.6%, while Korea's Kospi was 2.2% lower.

European stocks were lower, with the Stoxx Europe 600 down less than 0.1%. Deutsche Bank fell 5.4%--its biggest one-day drop since February -- following the launch of yet another restructuring plan, which will see the German lender cut nearly 20,000 jobs, slash its balance sheet and significantly shrink its investment bank.

Turkey's lira was down 1.8% on concerns about central-bank independence, after President Recep Tayyip Erdogan dismissed the bank's governor over the weekend.

In commodities, U.S. crude oil rose 0.6% to $57.83 a barrel. Gold fell less than 0.1% to $1,398.80.

--Joanne Chiu and Shen Hong contributed to this article

Write to Alexander Osipovich at alexander.osipovich@dowjones.com and Paul J. Davies at paul.davies@wsj.com

(END) Dow Jones Newswires

July 08, 2019 13:32 ET (17:32 GMT)

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