Recession worries weigh heavily: Wall Street's recovery is already over

The strong price recovery on Wall Street turns out to be a flash in the pan one day later. Robust economic data on Thursday once again fueled concerns that key interest rates are likely to rise further in the fight against high inflation. The US indices are clearly falling again. The dollar also continues to fall.

The recovery movement on Wall Street was already over on Thursday – the indices fell sharply again. The Dow Jones index lost 1.5 percent to 29,226 points. The S

The mid-week recovery was triggered by a sharp fall in US yields after the Bank of England (BoE) intervened in the bond market and temporarily bought UK government bonds to stabilize them. But now the prospect of further strong interest rate hikes and thus the increasing risk of a recession came to the fore again. An unexpected drop in weekly initial jobless claims also supported expectations of longer-term higher interest rates. These fell to their lowest level since April. A further strong US labor market could further increase the Fed’s scope for rate hikes, so the market fears.

“Central banks remain fully focused on inflation and raising interest rates, even if that means a recession,” said Chris Turner, ING’s global head of markets. “I think interest rates in the US will continue to rise as we are not yet in a restrictive zone and rate cuts will not come as easily or as quickly as the market expects,” said Michael Wang, CEO and Founder by Prometheus Alternative Investments.

The President of the Cleveland Federal Reserve, Loretta Mester, does not expect interest rate hikes to be suspended due to concerns about the US economy. The Fed has hiked rates by 300 basis points since March, but “look at how high inflation is,” Mester said. She is for a further increase to over 4 percent.

On the economic side, the US economy contracted in the second quarter. According to data from the third publication, gross domestic product (GDP) fell by 0.6 percent quarter-on-quarter, as expected by the market, compared to the previous quarter. GDP fell by 1.6 percent in the first quarter. The GDP deflator, a measure of inflation, rose by 9.0 (preliminary: 8.9) percent in the second quarter.

On the FX market, the dollar fell back a little after the previous day’s significant losses in the wake of the BoE bond intervention. The dollar index lost 0.4 percent. Robin Brooks, chief economist at IIF, explained that the dollar is stronger against European currencies but not against emerging markets. “We don’t see a strong dollar. We see a weak Europe,” said the participant.

Oil prices gave back part of the previous day’s gains. WTI and Brent lost up to 0.8 percent. “The lack of a risk premium makes it clear the market fears Fed Chair Jerome Powell more than the escalating behavior of Russian President Vladimir Putin or Opec’s ability to defend the market,” said Michael Tran, commodities analyst at RBC Capital Markets. Hurricane Ian, which made landfall in the Gulf of Mexico, also provided some support to sentiment, it said. Various oil companies had cleared their production platforms in advance.

After the sharp setback on the previous day, yields on the bond market rose again slightly. The 10-year yield rose 3.1 basis points to 3.77 percent. Investors are again betting on another 75 basis point rate hike by the Fed in November, a market watcher said.

After the slight recovery the day before, the gold price went up another 0.1 percent. However, the prospect of continued strong interest rate hikes and the dollar, which tends to remain strong, continued to weigh on the interest-free precious metal, it said.

Among the individual values, Apple gave up 4.9 percent. Bank of America analysts downgraded the stock to neutral. Apple’s earnings estimates could be revised down in the coming year as global consumer demand weakens, analysts said. The long-term prospects of the iPhone manufacturer are still favorable.

Vail Resorts ( 1.6%) narrowed loss in the fourth quarter. The company saw strong demand at its Australian resorts and continued to recover from the pandemic at its North American locations.

Only after the close of trading is the sporting goods manufacturer Nike expected to provide figures for the first quarter of the business year. The share was quoted 3.4 percent lighter in the run-up.