U.S. stocks turned lower on Thursday, as investors scrutinized economic data for clues about how aggressively the Federal Reserve would raise interest rates to curb inflation.
The broad S&P 500 index lost 0.4% in morning trade and the tech-heavy Nasdaq Composite fell 0.5%. European stocks also slid, with the regional Stoxx 600 index down 0.7%.
The moves come as new reports on the US labor market and retail sales give mixed signals on the health of the world’s largest economy, less than a week before the Fed’s announcement. next monetary policy decision.
Initial jobless claims in the US were lower than expected on Thursday, at 213,000 for the week ending September 10 – down from 218,000 the previous week and below economists’ forecasts. 226,000. Those data point to a tight labor market, one of the factors the Fed takes into account when formulating its borrowing cost strategy.
At the same time, retail sales in August were hotter than expected – up 0.3% month-on-month compared with July’s 0.4% drop and zero growth expectations. However, excluding motor vehicles and parts, retail sales unexpectedly fell 0.3% versus consensus forecast for a 0.1% gain.
Earlier this week, hotter-than-expected US inflation data prompted investors to boost their estimates of how far and quickly the Fed would raise interest rates to cool demand.
Markets are currently pricing in a one-in-three chance that the US central bank will raise rates entirely by a percentage point next week, following two consecutive 0.75 percentage points hikes.
“After high inflation at the start of the week, the Fed needs some good news and it’s not coming from retail sales data,” said Neil Birrell, chief investment officer at Premier Miton Investors.
“They can really do it when they see consumers spending significantly less to alleviate pressure to raise interest rates. Debate over 75 basis points or 100 basis points will take place right before the announcement and even then, thoughts will move straight to the next meeting and possibly the meeting after. “
The prospect of the Fed tightening monetary policy has increased pressure on currencies in Asia, where some central banks have maintained a much more easing stance.
The foreign yuan – traded outside of the country’s mainland market – lost as much as 0.6% on Thursday to break above 7 against the greenback for the first time since July 2020. The Japanese yen hovers around its weakest point in 24 years, while the South Korean won trades at levels last seen in March 2009.
In a sign of traders anticipating more assertive action by the Fed on price growth, government debt markets came under pressure on Thursday with government-sensitive two-year US Treasury yields. books increased 0.06 percentage points to 3.84%. The yield on the 10-year Treasury note, considered a proxy for borrowing costs around the world, added 0.03 percentage points to 3.43%.
The German two-year Bund yield added 0.12 percentage points to 1.51 percent. Bond yields increase as their prices fall.