US stocks struggle for direction as traders weigh signs of slowdown

Wall Street stocks traded choppily on Wednesday after heavy falls in the previous session as traders weighed up fresh signs of a looming economic slowdown.

The blue-chip S&P 500 share index bounced between small gains and losses before eventually closing 0.1 per cent lower for the day. The technology-focused Nasdaq Composite was flat.

The calmer day followed a volatile Tuesday, when a lacklustre US consumer confidence report fuelled concerns about a downturn and prompted steep losses in both indices. The S&P 500 has fallen almost 20 per cent so far this year.

“We’ve already had a lot of weak data from the US housing market, we’ve got weak consumer confidence data from around the world because of rising prices, and business investment tends to react to the consumer,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.

“Now, everyone is second-guessing the central banks.”

In government bond markets, the yield on the 10-year US Treasury note fell 0.08 percentage points to 3.10 per cent, reflecting a higher price for the benchmark debt. Germany’s 10-year Bund yield slid 0.11 percentage points to 1.51 per cent.

Line chart of Implied average federal funds rate in February 2023 (%)* showing Fed rate rise expectations ease from recent highs

Bond yields, which move inversely to their prices, tend to rise in tandem with forecasts for interest rates and inflation. The 10-year Treasury yield has more than doubled since the start of the year but has slipped back in recent weeks amid rising expectations of a possible recession.

The US Federal Reserve’s current benchmark target range sits at 1.50-1.75 per cent, and investors now expect the rate to climb to 3.5 per cent by early 2023, according to futures markets. That estimate has fallen from 3.9 per cent two weeks ago as investors bet that an economic downturn would reduce the number of interest rate rises required to bring down inflation.

“People fear how much demand could fall in this period where central banks are raising rates quite aggressively,” said Nitesh Shah, head of commodities and macroeconomic research for Europe at exchange traded fund provider WisdomTree.

“With higher recession risk, bonds can help your portfolio because you can price some rate cuts in coming years,” added Guilhem Savry, head of macro and dynamic allocation at Unigestion.

In Europe, the Stoxx 600 share index closed 0.7 per cent lower, following mixed eurozone inflation data.

The annual rate of consumer price inflation in Germany declined to 8.2 per cent this month from 8.7 per cent in May, data on Wednesday showed. But consumer prices in Spain rose at their fastest rate for 37 years in June, adding 10 per cent.

Elsewhere, Brent crude, the international oil benchmark, slid 1.5 per cent to $116.26 a barrel.

In Asia, Hong Kong’s Hang Seng share index fell 1.9 per cent while its sub-index of technology shares lost 3.3 per cent.


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