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Stocks on Wall Street fell to five-week lows and long-dated Treasury yields hit their highest level this year, as strong retail sales data stoked concerns that U.S. interest rates could remain elevated for longer.

Wall Street’s benchmark S&P 500 was down 0.8% in afternoon trade, on track to hit its lowest level since mid-July. The tech-heavy Nasdaq Composite fell 0.7%.

The yield on the 10-year U.S. Treasury note, which is more sensitive to economic growth expectations, rose 0.04 percentage point to 4.22%, the highest level since November 2022. The two-year yield fell 0.01 percentage point to 4.95%. When prices fall, yields rise.

Data previously showed that U.S. retail purchases rose 0.7% in July, up from 0.3% in the previous month and well above the consensus forecast of 0.4%.

Some investors see signs of resilience in consumer spending as evidence that interest rates will stay high for a long time. Inflation in the U.S. has started to fall as the Fed’s rate-hiking cycle has begun, but the central bank insists it won’t start cutting rates anytime soon.

“A good retail sales report will allow the Fed to reduce concerns about recession risks and allow them to focus on keeping inflation in check,” said Bill Adams, chief economist at Comerica Bank.

Bank stocks fell after an analyst at Fitch told CNBC the agency was considering downgrading several banks, adding to pressure on U.S. stocks. Shares of big banks such as JPMorgan Chase & Co and Bank of America fell more than 2%. The KBW Bank Index fell 2.6 percent.

Fitch’s warning follows a decision last week by rival credit agency Moody’s to downgrade some mid-sized banks, citing concerns about industry profitability.

Separately, DIY retailer The Home Depot (The Home Depot) reported a smaller-than-expected drop in second-quarter sales, sending shares up 0.7%.

S&P 500 and Stoxx Europe 600 line charts, readjusted to show U.S. and European stocks hitting five-week lows

Stocks in Europe and Asia fell earlier in the day, followed by weakness in U.S. stocks, which were exacerbated by concerns over a sluggish Chinese economy. Europe’s Stoxx Europe 600 index fell 0.9% to its lowest level since July 11, while Paris’ Cac 40 index closed down 1.1% for the day.

British wage growth hit a record annual pace in the three months to June, adding to signs of persistent inflationary pressures and sending the FTSE 100 , Europe’s biggest index, down 1.6%.

The two-year gilt yield rose 0.05 percentage point to 5.12%, the highest in a month, while the 10-year yield edged up 0.02 percentage point to 4.58%. Sterling rose 0.2% to $1.27.

“Wage growth in the UK was well above expectations and this should underpin the Bank of England’s rate hike in September,” said James Smith, developed markets economist at ING.

Asian stocks sold off as investors digested the People’s Bank of China’s surprise move to cut interest rates on one-year medium-term lending, which affected lending to financial institutions.

The rate cut was 0.15 percentage point to 2.5%, bringing the rate to its lowest level since it was introduced in 2014. The vast majority of markets expect interest rates to remain unchanged. The yuan fell 0.3% to 7.2838 per dollar, its weakest since November.

The surprise policy move came after Chinese data showed weak consumer and business activity in July, raising concerns that the country is struggling to recover from a severe three-year Covid-19 lockdown.

“Today’s data is further evidence that China’s economy remains stagnant despite gradual policy support,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics, noting that the rate cut could be “in order to boost the economy.” boost confidence, both in financial markets and the wider economy.”

China’s CSI 300 index fell 0.2%, while Hong Kong’s Hang Seng lost 1%.

Additional reporting by Nicholas Megaw in New York

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