US stocks and government bond prices fell on Wednesday, putting the brakes on a rally fuelled by investors looking for bargains and weak economic data easing fears over interest rate rises.
The broad S&P 500 was down 0.9 per cent by noon in New York, having ended the previous session up 3.1 per cent. The tech-heavy Nasdaq Composite fell 1.3 per cent. In Europe, the regional Stoxx 600 closed down 1 per cent.
Tuesday’s moves had taken the S&P’s advance over two days to 5.7 per cent — its strongest such rally since the depths of the coronavirus pandemic in spring 2020 — as some analysts and investors identified bargain opportunities after three straight quarters of losses.
The gains had picked up following the release of weaker than expected US labour market data on Tuesday that showed the number of job vacancies in the world’s largest economy dropped in August to 10.1mn, below economists’ forecasts of 10.8mn and the previous month’s figure of 11.2mn.
Jobs reports have been closely watched as an indicator of how far and fast the US Federal Reserve will tighten monetary policy to curb inflation, with stronger data driving expectations of more aggressive action and weaker numbers soothing concerns over the scale of future rate rises.
The figures on Tuesday were “the first official indicator to point unambiguously, if not necessarily reliably, to a clear slowing in [labour] demand”, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Concerns have intensified in recent months that the Fed and its peers will jack up borrowing costs to such an extent that they compound an economic slowdown.
But even as signs of a cooling jobs market eased expectations of rate increases, Hani Redha, global multi-asset portfolio manager at PineBridge Investments, warned: “The scale of tightening means we will see ongoing deceleration that is quite likely to take us into a recession anyway.”
Redha said equity market gains in the past couple of days could be a “bear market rally”, when shares recover briefly during a longer period of decline.
“As a bear market progresses, the rallies get bigger,” he added. “It takes more and more volatility to . . . wash out the long positions [before a more sustainable recovery begins].”
In debt markets, the yield on the 10-year US Treasury note added 0.16 percentage points to 3.78 per cent as its price dropped sharply. UK bonds also came under pressure, with the equivalent gilt yield rising 0.16 percentage points to 4.03 per cent.
Gilts had convulsed last week in response to Westminster’s “mini” Budget as investors took fright from new chancellor Kwasi Kwarteng’s proposed tax cuts and extensive borrowing plans. Selling pressures eased only when the Bank of England intervened last Wednesday to calm the turbulence, pledging to buy long-dated bonds.
The pound lost 1.8 per cent to trade at $1.127, following Liz Truss’s Conservative party conference speech in which she sought to reassure markets by stating her commitment to fiscal discipline.
Asian stocks followed US equities higher on Wednesday, with the Hang Seng index closing up 5.9 per cent as it reopened after a public holiday.
Wall Street stocks snap powerful rally - Financial Times
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