Stocks fell on Wednesday as recession fears ahead of an expected Federal Reserve rate hike later in the day returned to the forefront of traders’ minds.
The sell-off followed a sharp fall on Wall Street, fueled by concerns that high inflation over the past four decades and rising borrowing costs were restraining Americans from spending and pushing the economy into recession.
This was supported by a profit warning from retail giant Walman and a closely watched consumer confidence, which fell for the third straight month.
And the International Monetary Fund lowered its global growth forecasts, warning that the US economy was likely to contract.
There was hope that a recent rally in markets suggested the protracted sell-off may be over and that signs of economic slowdown could allow the Fed to ease its tightening into next year and into 2023 with the rate cut start .
However, observers warned there was still plenty of volatility ahead as the bank was still wandering, prices were soaring, Russia’s war in Ukraine showed no end and China was still struggling with Covid lockdowns.
“The Fed hasn’t even gone neutral yet,” Janus Henderson Investors’ Jason England told Bloomberg Television.
“For them, I think it’s a bit premature to start easing already or to see that easing is priced in.”
All eyes are now on the Fed meeting, which concludes on Wednesday, followed by second-quarter economic growth numbers on Thursday.
While officials are widely inclined to announce a second straight quarter-point rise, the main focus will be on their outlook for the economy and pointers to future moves if it falters.
“Markets are pricing in a slower pace of tightening before the Fed moves to easing in 2023,” said Stephen Innes of SPI Asset Management.
“However, Fed Chair Jerome Powell has resisted a recession while emphasizing an outsized focus on fighting inflation.”
After a drop in Wall Street, most of Asia gave up much of Tuesday’s rally.
Hong Kong, Shanghai, Sydney, Seoul, Singapore, Taipei, Manila and Jakarta were all in the red, although Tokyo, Jakarta and Wellington rose.
But US futures rallied after solid earnings releases from tech titans including Microsoft and Alphabet allayed some consumer concerns.
Oil prices faltered as recession concerns were offset by data showing a sharp drop in US inventories, indicating strong demand at a time when supply remains weak.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 0.1 percent at 27,692.89 (breakthrough)
Hong Kong – Hang Seng Index: FALSE, up 1.2 percent to 20,659.18
Shanghai — Composite: down 0.3 percent at 3,268.76
Euro/Dollar: UP at $1.0146 from $1.0126 on Tuesday
Pound/dollar: rise to $1.2051 from $1.2030
Euro/Pound: UP at 84.19p from 84.09p
Dollar/yen: up at 137.02 yen from 136.95 yen
West Texas Intermediate: FLAT percent at $94.96 a barrel
North Sea Brent Crude: FALSE, up 0.2 percent at $104.22 a barrel
New York – Dow: down 0.7 percent at 31,761.54 (close)
London – FTSE 100: FLAT at 7,306.28 (close)
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