The dollar eased and yields initially fell on Tuesday as data showing slower economic growth sparked initial hopes that the Federal Reserve would back off from its aggressive interest rate hike at its March 2019 symposium. central bank in Jackson Hole, Wyoming on Friday.
But yields then rose and stocks fell as the view that the Fed would reiterate a hawkish message appeared to have more influence, even as market bets on the extent of the central bank’s rate hike American in September rocked all day.
Gold ended a six-game losing streak as the dollar weakened while oil rose nearly 4% after Saudi Arabia floated the idea of production cuts from of the Organization of the Petroleum Exporting Countries and its allies.
Sales of new single-family homes in the United States plunged to a 6.5-year low in July, while an S&P Global survey showed its measure of private sector business activity fell to a low. 27 months, suggesting that the Fed’s efforts to control inflation were working.
“The Fed has been pretty consistent in trying to sound as hawkish as possible,” said Marvin Loh, senior global market strategist at State Street in Boston. “Animal spirits were better for risk over the summer based on the fact that we were close to the end of the hiking cycle.”
But Goldman Sachs said in a note it expected Powell to reiterate the case for a slower pace of tightening, as noted in its July press conference and in minutes released the week last of this meeting of decision-makers.
Powell is likely to balance that message by emphasizing that the Fed “remains committed to lower inflation and that future policy decisions will depend on incoming data,” Goldman said.
The U.S. economy appears poised for a winter energy price shock, with natural gas prices at their highest level since 2008, said Bill Adams, chief economist at Comerica Bank in Dallas.
With demand cooling, another big negative shock looks likely and a recession is also more likely than not by mid-2023, if not already underway, Adams said.
The Dow Jones Industrial Average fell 0.47%, the S&P 500 slipped 0.22% and the Nasdaq Composite closed flat.
The dollar index fell 0.42% as the euro rebounded, rising 0.24% to $0.99 and the yield on 10-year Treasury bills rose 2.6 basis points at 3.06%.
Markets are hesitant to know whether the Fed will raise rates by 50 or 75 basis points next month. The probability of a 75 basis point rise is 52.5% and the smallest rise is 47.5%, bets that reversed throughout the day.
Earlier, the euro fell to new two-decade lows after data showed eurozone business activity contracted for a second straight month in August as war in Ukraine was expected to ensure that the outlook for the European economy remains bleak.
The Chinese yuan weakened to its lowest level in two years and the pound briefly touched its lowest level since March 2020, which benefited the dollar.
While the S&P Flash Composite Purchasing Managers’ Index (PMI) of business activity in Europe was not as bad as expected, analysts said darker news for the economy is likely given how gas prices reached record highs before winter.
The MSCI global stock index slid 0.26%, while the STOXX index of European company stocks closed down 0.42%, after falling for nearly a week.
Benchmark gas prices in the European Union jumped 13% overnight to a record high, having doubled in just one month to be 14 times higher than the average for the past decade. Europe has braced for further disruption of energy supplies from Russia.
Asian stocks fell for a seventh straight session on Tuesday after Europe’s renewed energy price spike stoked recession fears and pushed bond yields higher, while sending the euro to a low level in 20 years.
Unease about China’s economy continued to seep in as a cut in lending rates and talk of a new round of official loans to property developers underscored tensions in the sector.
Chinese blue chips fell 0.5% as the yuan fell to its lowest level in nearly two years.
The Nikkei lost 1.2% after a PMI survey showed factory activity in Japan slowed to a 19-month low in August. Crude prices rose as Saudi Arabia warned that the OPEC+ producer alliance could cut output.
U.S. crude futures rose $3.38 to settle at $93.74 a barrel and Brent rose $3.74 at $100.22. US gold futures rose 0.7% to $1,761.20.
(Edited by : Sangam Sing)
First post: STI