Worries about the “US Fed tightening into recession” later this week; ASX flat

Australian stocks started the day up slightly as investors brace for an outsized US Federal Reserve rate hike later this week, sparking global economic concerns.

The ASX 200 was up 8 points or 0.1% at 6,747 as of 10:17 a.m. AEST.

Meanwhile, the Australian dollar was stable at 67.27 US cents.

The real estate (+0.9 pc) and basic materials (+0.7%) sectors opened higher.

Lake Resources (+17.7pc), Oz Minerals (+4.5pc), Mineral Resources (+3.7pc) were among the best performers.

However, Qube Holdings fell 3.8%, Magellan lost 3.8% and Block lost 3.6%.

US stocks down

Major Wall Street indexes closed lower on Friday as US Treasury prices climbed as investor fears over the outlook for a global recession intensified as they also braced for a massive rate hike US interest from the Federal Reserve.

Economic fears were amplified by a revelation from FedEx late Thursday that a slowdown in global demand had accelerated in late August and was set to worsen in the November quarter, prompting the delivery company to withdraw its financial forecasts.

The warning came at a time when investors were already nervous ahead of a Fed meeting, after which the central bank is expected to raise rates by 75 basis points. Some traders are betting on a 100 basis point increase, according to CME Group’s FedWatch tool. The Bank of Japan and the Bank of England are also due to meet next week.

“Today [Friday] is a continuation of what we’ve seen this week, volatility around expectations of what the Federal Reserve might do, with 75 basis points priced in and 100 basis points a possibility,” said Megan Horneman, chief investment officer at Verdence Capital Advisors.

“Then you have the dismal report from FedEx, which some people see as an indicator not only of consumer spending, but of the economy in general.”

The stock market is down on “growing concern that is really starting to get worse that the Fed is going to make a mistake and tighten too much,” said Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis.

Paulsen said FedEx’s warning had investors wondering “what if the Fed is going to tighten in the middle of a recession?”.

But Treasury yields retreated after the FedEx warning reignited speculation that slowing growth will help the Federal Reserve bring inflation under control.

After hitting 3.924%, its highest level since 2007, earlier in the day the two-year US Treasury yield, a gauge of interest rate expectations, fell.

The inversion of the yield curve between two-year and 10-year bonds – seen as a harbinger of recession – widened further before returning to Thursday’s closing level.

The two-year yield last fell 0.4 basis points to 3.869% and the 10-year yield slipped 0.6 basis points to 3.453%.

“The Fed will take the FedEx report as an indication that it is on the right track, rather than a warning that the Fed may be acting too aggressively,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon. , New Jersey.

In stocks, the Dow Jones Industrial Average fell 139 points, or 0.5%, to 30,822; the S&P 500 fell 28 points, or 0.7%, to 3,873; and the Nasdaq Composite fell 104 points, or 0.9%, to 11,448.

The pan-European STOXX 600 index was down 1.6% and the MSCI gauge of stocks across the world lost 1%.

On Friday, the vice president of the European Central Bank said an economic slowdown in the eurozone would not be enough to control inflation and the bank would have to keep raising rates.

Oil prices rose slightly on Friday as a spill at Iraq’s Basra terminal looked likely to limit crude supply, but the commodity remained lower during the week on fears that rate hikes could dampen growth. global economic growth and fuel demand.

As of 10:28 a.m. AEST, Brent crude oil was up slightly, trading at US$92.24 a barrel.


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