By Samuel Indyk and Koh Gui Qing
LONDON (Reuters) -Global stocks retreated from a 13-month high on Wednesday and the U.S. dollar drifted lower as attention turned towards next week's pivotal inflation data and Federal Reserve meeting, where chances of a rate hike continued to ebb.
On Wall Street, stocks ceded earlier gains, with the tech-heavy Nasdaq Composite closing 1.3% lower, the biggest one-day fall in over two weeks, as investors took profit in mega-cap stocks such as Nvidia (NASDAQ:NVDA) following recent surges. The S&P 500 Index slipped 0.38%, while the Dow Jones Industrial Average bucked the trend and ended up 0.27%.
Meanwhile, the Canadian dollar jumped after the Bank of Canada lifted interest rates to a 22-year high of 4.75%, while Turkey's lira plunged to a record low against the dollar as authorities appeared to loosen stabilising measures after signalling a pivot to more orthodox policies.
The pan-European benchmark STOXX 600 index dipped 0.19%, compared with a 0.51% jump in the MSCI's broadest index of Asia-Pacific shares outside Japan. That left the MSCI's broadest index of world stocks down 0.33%, after edging up earlier to a 13-month high.
Still, some analysts warned that investors might be too sanguine about interest rate risks.
"Markets are pricing a relatively low probability of a hike in June, and putting more probability on a July hike," said economists at Citi.
"But monetary policy elsewhere illustrates both the economic peril of a premature pause and the potential for resurgent inflation to provoke 'surprise' rate hikes," they said, citing central banks in Australia and Canada as examples.
Indeed, in a sign that markets are shrugging off any rate uncertainty for now, the CBOE's VIX, a measure of expected stock market volatility, hit a low of 13.77 on Wednesday, near its lowest close since February 2020.
Treasury yields rose, getting a boost from Canada's rate hike on Wednesday. The two-year yield, which typically moves in step with interest rate expectations, rose to 4.5521%. The yield on 10-year Treasuries also jumped to 3.7933%.
Treasury yields also have been drifting higher in recent days on concerns that an impending issuance of $1 trillion or more in short-term debt may tighten credit conditions in the market.
The dollar was steady against a basket of currencies at 104.13, but down 0.21% against the loonie, while the Turkish lira weakened more than 7% earlier to a record low of 23.17 per dollar, its biggest one-day selloff since the 2021 crash.
"It looks like the central bank's efforts to fight a stronger dollar is either fading – after Erdogan's victory in the latest elections – or keeping the lira steady is becoming more difficult and increasingly expensive," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Data from China showed exports shrank much faster than expected in May and imports fell, albeit at a slower pace, as manufacturers struggled to find demand abroad and domestic consumption remained sluggish.
"The Chinese trade data is the latest indicator that tells you there's nothing good going on in global demand," said Ben Laidler, global markets strategist at eToro.
"There's a huge gulf in the global economy between services and manufacturing. This is a warning sign that global growth will slow from here. The question is how much," Laidler added.
Oil prices edged higher as Saudi Arabia's weekend pledge to cut output outweighed weak Chinese data.
Brent crude futures settled 66 cents, or 0.9%, higher at $76.95 a barrel, while U.S. West Texas Intermediate crude futures gained 79 cents, or 1.1%, to $72.53.
Rising Treasury yields weighed on non-yielding gold. Gold fell 1.15% to $1,940.3 per ounce.
Bitcoin slumped 3.19% to $26,368, consolidating after a sharp rebound on Tuesday from as low as $25,350.
The token has been a paradoxical beneficiary of a U.S. Securities and Exchange Commission crackdown on cryptocurrency exchanges, and the classification of tokens including Solana, Cardano and Polygon as securities.