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US stocks declined and traders sold Treasuries after economic data in the US signalled that high interest rates were weighing on the world’s largest economy.
Wall Street’s benchmark S&P 500 was down 0.2 per cent in Tuesday afternoon trading, dragged lower by consumer discretionary and utilities stocks. The tech-focused Nasdaq Composite gave up 0.3 per cent.
Traders sold off long-dated US bonds, with the yield on the 10-year Treasury rising 0.09 percentage points to 4.05 per cent, its highest level since early July. The yield on the two-year note rose 0.03 percentage points to 4.91 per cent.
The moves came after data from the US labour department showed demand for workers continued to slow as borrowing costs reached historic highs, with the number of job openings falling to 9.6mn in June — the lowest level since April 2021. The job “quits rate” also declined, indicating fewer attractive options in the labour market.
“Combined with the easing in the quits rate, this is a small step in the right direction in terms of signals that the labour market may be coming into better balance,” said Katherine Judge, senior economist at CIBC Capital Markets.
Separately, the ISM manufacturing purchasing managers’ index rose slightly to 46.4 in July, but missed economists’ forecasts and remained below the neutral 50 mark, keeping it in contractionary territory.
“Demand remains weak,” the ISM said. “There are signs of more employment reduction actions in the near term to better match production output.”
US stocks clocked their longest monthly winning streak in two years in July, as signs of falling inflation and resilient growth raised investors’ hopes that the US Federal Reserve could complete its monetary tightening cycle without causing a recession.
“We still have key macro events this week . . . but [the] market seems content in its view that the central banks are close to the end of their rate-hiking policy,” said Mohit Kumar, chief Europe financial economist at Jefferies. Traders expect the Federal Reserve to hold interest rates in the current target range for the rest of the year, according to a Refinitiv survey.
Investors will pay close attention to US monthly payrolls data coming out later in the week, in the hope of gaining further insight into the Fed’s interest rate path.
In Europe, the region-wide Stoxx Europe 600 index fell 0.9 per cent, extending early morning losses, while France’s Cac 40 lost 1.2 per cent and Germany’s Dax gave up 1.3 per cent. The consumer goods sector led declines, down 1.3 per cent.
The moves came as investors fretted that a prolonged period of high borrowing costs in the eurozone, as well as China’s stalled economic recovery, would weigh on global demand for goods.
The HCOB’s final eurozone manufacturing purchasing managers’ index fell to 42.7 in July from 43.4 in the previous month, hitting its lowest level since May 2020 when the region’s economy was hit by the onset of the Covid-19 pandemic.
The declines echoed markets in China, where the CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 0.4 per cent and Hong Kong’s Hang Seng lost 0.3 per cent, as investors worried about the country’s stalled post-pandemic recovery.
The Caixin manufacturing purchasing managers’ index, a private sector survey tracking monthly changes in China’s factory activity, slipped to 49.2 in July from 50.5 in June, undershooting analysts’ forecasts of 50.3.
Elsewhere in Asia, Japan’s Topix index was up 0.6 per cent, and South Korea’s benchmark Kospi rose 1.3 per cent.
Meanwhile, slowing inflation prompted Australia’s central bank to keep its main interest rate unchanged for the second consecutive meeting, at 4.1 per cent, defying market forecasts of a 0.25 percentage point increase. The S&P/ASX 200 gained 0.5 per cent.
The Australian dollar fell 1.7 per cent against the US dollar to trade at $0.66, its lowest level in more than a month.
The meeting came a week after central banks in the US and Europe raised rates but refrained from their usual hawkish guidance in a sign that the global tightening cycle could soon draw to a close.
