Wall Street stocks fell on Thursday after dismal U.S. economic data fueled fears of an impending recession, although the numbers raised the possibility of a smaller rate hike when the Federal Reserve meets later this month.
The U.S. benchmark S&P 500 and the tech-heavy Nasdaq Composite both declined 0.6 percent in early New York trade, following sharp falls for European stocks earlier in the day.
December data showing weak US retail sales and a decline in industrial production sent the S&P 500 down 1.6 percent on Wednesday, reversing a rising equity market trend despite signs of slowing economic growth.
Confident that inflation has peaked, investors are still increasingly worried about the depth of the expected recession and the effect of the Fed’s aggressive monetary tightening campaign on corporate profits. Microsoft’s decision to cut 10,000 jobs only added to the gloom, while consumer goods conglomerate Procter & Gamble’s stock slid after reporting a drop in net sales.
“Bad news is bad news” once again says Charlie McElligott, strategist at Nomura. Noting a relatively strong start to US equities to 2023 against a backdrop of macroeconomic uncertainty, Premier Miton’s chief investment officer Neil Birrell joked that he was “worried that we’ve made the whole year in the first two weeks”.
The US labor market remains tight, even as other parts of the economy slow. Initial claims for jobless benefits fell to 190,000 in the week ended Jan. 14 from 205,000 in the previous week, data released on Thursday showed. Economists polled by Reuters had expected 214,000 claims.
Slowing economic activity on the other hand exacerbated “concerns on the growth and earnings of corporates’ for equity investors” but reinforced the “disinflation narrative” for bond investors, according to analysts at JPMorgan.
US Treasuries, which had rallied across the board in the previous session, sold off on Thursday, with the yield on the benchmark 10-year note rising 0.02 percentage points to 3.39 percent. Bond yields move inversely to prices.
Softer-than-expected retail sales and industrial production also weighed on the dollar, which fell 0.2 percent against a basket of six currencies as traders increased bets that the Fed will raise rates by a quarter of a percentage point in February, after 0.5 percentage points. moved in December.
Federal Reserve Bank of Dallas President Lorie Logan looks set to pull back 0.25 percentage points next month as she warns investors not to get ahead of themselves.
“The slower pace could reduce short-term interest rate uncertainty, which would ease financial conditions,” Logan said on Wednesday. “But if that happens, we can offset the effect by increasing rates to a higher level than previously expected.”
In Europe, the regional Stoxx 600 index, which has risen for six consecutive sessions, fell 1.2 percent. Germany’s Dax lost 1.4 percent and London’s FTSE 100 shed 1.1 percent, dragged down by European Central Bank president Christine Lagarde’s promise to “stay firm” on rate hikes. The hawkish comments sent German and Italian government bond yields rising.
Elsewhere, Hong Kong’s Hang Seng index fell 0.1 percent and China’s CSI 300 added 0.6 percent, with both indices having risen sharply in recent months due to Beijing’s reversal of strict zero-Covid policies in December.
Prices for Brent crude, the international oil benchmark, rose 0.4 percent, paring earlier losses, to $85.72 a barrel.