Economic fears were compounded by a revelation by FedEx Corp late Thursday that a global demand slowdown had accelerated in late August and would worsen in the November quarter, prompting the delivery company to withdraw its financial guidance. — Reuters image
Saturday, September 17, 2022 8:12 am MYT
NEW YORK (Reuters) – Major Wall Street indices closed lower yesterday, while US Treasury prices rose as investor fears mounted over the prospect of a global recession while also anticipating a massive US interest rate hike prepared by the Federal Reserve.
Economic fears were compounded by a revelation by FedEx Corp late Thursday that a global demand slowdown had accelerated in late August and would worsen in the November quarter, prompting the delivery company to withdraw its financial guidance.
The warning came at a time when investors were already nervous ahead of a Fed meeting, after which the central bank is widely expected to hike rates by 75 basis points. Some traders are betting for a 100 basis point hike, according to CME Group’s FedWatch tool. The Bank of Japan and Bank of England will also meet next week.
“Today, a continuation of what we saw this week, volatility around expectations for what the Federal Reserve may do is baked in at 75 basis points and 100 basis points possible,” said Megan Horneman, chief investment officer at Verdence Capital Advisors.
“Then you have FedEx’s dismal report, which some people are taking as a guide not just for consumer spending but for the broader economy.”
The stock market is down on a “growing concern that’s really starting to escalate that the Fed is going to make a mistake and tighten too much,” said Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis.
Paulsen said the FedEx warning had investors wondering, “What if the Fed is going to tighten into a recession?”
But Treasury yields fell after the FedEx warning revived the notion that slower growth will help the Federal Reserve tame inflation.
Earlier in the day, the US two-year Treasury yield, a guide to interest rate expectations, fell after rising to 3.924 percent, the highest since 2007.
The inversion of the yield curve between 2-year and 10-year debt — seen as a harbinger of a recession — continued to widen before returning to Thursday’s close.
The 2-year yield fell 0.4 basis points to 3.869% and the 10-year US10YT=RR yield slipped 0.6 basis points to 3.453%.
“The Fed will see the FedEx report as an indication that they are on the right track, not a warning that the Fed may be overly aggressive,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey .
In stocks, the Dow Jones Industrial Average fell 139.4 points, or 0.45 percent, to 30,822.42; the S&P 500 fell 28.02 points, or 0.72 percent, to 3,873.33; and the Nasdaq Composite fell 103.95 points, or 0.9 percent, to 11,448.40.
The pan-European STOXX 600 index was down 1.58 percent and the MSCI index for global equities was down 0.96 percent.
Earlier in the day, the European Central Bank’s vice-president said an economic slowdown in the euro zone would not be enough to control inflation and the bank needed to keep raising interest rates.
The dollar index fell 0.1 percent, the euro rose 0.09 percent to $ 1.0008.
The Japanese yen rose 0.40 percent against the greenback to 142.94 per dollar, while sterling was last traded at $1.142, down 0.38 percent on the day.
Analysts and fund managers said the yen could plummet to a three-decade low before the end of the year.
Oil prices rose modestly on Friday as an oil spill at Iraq’s Basra terminal looked set to restrict crude supply, but the commodity remained down for the week amid fears that rate hikes would slow global economic growth and fuel demand.
U.S. crude was up 1 cent at $85.11 a barrel, while Brent crude was up 51 cents at $91.35.
Gold prices rose on Friday as the dollar faltered, but the greenback’s gains over the week and expectations of a sizeable US interest rate hike kept bullion well below the key $1,700 level and on course for their weakest week since four.
Spot gold rose 0.6 percent to $1,674.17 an ounce. US gold futures were up 0.34 percent to $1,671.70 an ounce. – Reuters