NEW YORK, Sept 28 — US stocks gave up early gains to fall deeper into a bear market yesterday, while sterling showed scant movement a day after hitting a record low, as investors remained nervous about a potential global recession.
The pound was little changed at US$1.071 (RM7.88) after sterling collapsed to US$1.0327 on Monday on concern over the funding of recently announced UK tax cuts, which follow huge energy subsidies.
The Bank of England said late on Monday it would not hesitate to change interest rates and was monitoring markets “very closely.” BoE Chief Economist Huw Pill added yesterday that central bank was likely to deliver a “significant policy response” to last week’s announcement but it should wait until its next meeting in November before making its move.
The yield on five-year gilts about 0.1 per cent to about 4.6 per cent, holding its spike on Monday from just over 4 per cent.
US stocks mostly faltered after a morning bounce, with the S&P 500 hitting a two-year intraday low. The Dow Jones Industrial Average fell 0.42 per cent, the S&P 500 lost 0.20 per cent, and the Nasdaq Composite .IXIC added just 0.25 per cent
The S&P benchmark index fell more than 20 per cent from its early January high to a low on June 16, confirming a bear market. The index then rallied into mid-August before petering out.
“We don’t see a quick retrenchment or a return to 2 per cent inflation, keeping the Fed in hiking mode. This implies more volatility and a need for caution and balance in equity allocations,” Tony DeSpirito, BlackRock’s chief investment officer for US Fundamental Equities, wrote in a note released yesterday.
Markets see a 65 per cent probability of a further 75 basis points move at the next US Federal Reserve meeting in November.
The Fed needs to raise interest rates by at least another percentage point this year, Chicago Fed President Charles Evans said yesterday, a more aggressive stance than he has previously embraced that underscores the central bank’s resolve to quash excessive inflation.
“Central bankers have been walking a tightrope trying to curb inflation while attempting to limit recessionary risks,” Bank of America strategists wrote in a note released yesterday.
“However, their recent tone and ‘jumbo’ rate hikes have reinforced that the foremost priority is controlling inflation, even at the potential cost of a recession.”
Global contagion
Spillover from Britain kept other assets on edge.
The MSCI world equity index reversed early gains yesterday, falling about 0.3 per cent to a near two-year low early yesterday afternoon. European stocks slipped 0.13 per cent.
MSCI’s broadest index of Asia shares outside Japan hit a fresh two-year low and was flat on the day. Japan’s Nikkei gained about 0.5 per cent.
Bond selling in Japan pushed yields up to the Bank of Japan’s ceiling and prompted more unscheduled buying from the central bank, while euro zone government bond yields rose to new multi-year highs yesterday.
Benchmark US 10-year Treasury yields also rose to their highest in more than 12 years as investors braced for higher interest rates.
The dollar held gains yesterday in its relentless rally while sterling, the euro and Japanese yen regained little ground from multi-year lows after unusually volatile trading in recent sessions.
There was some good news. New orders for US-manufactured capital goods increased more than expected in August, suggesting that businesses remained keen to invest in equipment, and a survey showed consumer confidence rising for a second straight month in September.
Oil rallied after plunging to nine-month lows in the previous session, helped by supply curbs in the US Gulf of Mexico ahead of Hurricane Ian and by a slightly softer dollar.
Brent crude settled 2.6 per cent higher at US$86.27 a barrel, and US crude ended at US$78.50, up 2.3 per cent.
Dutch and British gas prices spiked on news that the Nord Stream gas pipeline from Russia to Europe had suffered damage, raising concerns over the security of the bloc’s energy infrastructure and triggering a sabotage probe.
Gold which hit a 2-1/2-year low on Monday, rose around 0.3 per cent to US$1,626 an ounce.
Bitcoin briefly broke above US$20,000 for the first time in about a week, as cryptocurrencies bounced. — Reuters
