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U.S. stocks seen extending losses as rate hikes, growth worries weigh
US Market
Lower futures and rising concerns about growth amid higher interest rates point to a weak start for U.S. stocks on Thursday.
The Dow futures are down 0.73 percent, the S&P futures are lower by about 1 percent, and the Nasdaq futures are down 1.25 percent.
Investors are also likely to react to the latest batch of economic data and quarterly earnings updates. Reports about a surge in Covid-19 cases in China and fresh restrictions are likely to weigh.
Stocks ended sharply lower on Wednesday after seeing substantial volatility during the later part of the session, as traders reacted to the Federal Reserve’s monetary policy announcement and subsequent comments by Fed Chair Jerome Powell.
The major averages initially reacted positively to the Fed’s statement but pulled back sharply going into the close of trading.
The Dow slumped 505.44 points or 1.6 percent to 32,147.76, the Nasdaq plunged 366.05 points or 3.4 percent to 10,524.80 and the S&P 500 tumbled 96.41 points or 2.5 percent to 3,759.69.
The late-day volatility came after the Fed announced its widely expected decision to raise interest rates by another 75 basis points.
Citing efforts to achieve maximum employment and inflation at the rate of 2 percent over the longer run, the Fed announced its decision to raise the target range for the federal funds rate to 3.75 to 4 percent.
The Fed also said that ongoing increases in rates will be “appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
Comments from Fed Chair Jerome Powell tamped down optimism about the outlook for interest rates. “It is very premature to be thinking about pausing,” Powell said in his post-meeting press conference. “People when they hear ‘lags’ think about a pause.”
“It is very premature, in my view, to think about or be talking about pausing our rate hikes. We have a ways to go,” he added.
U.S. Economic Reports
Data from the Commerce Department showed the U.S. trade gap widened to a three-month high of $73.3 billion in September, up from a downwardly revised $65.7 billion in August. Exports were down 1.1 percent at $258 million, while imports increased by 1.5 percent to $331.3 million in the month.
Data released by the Labor Department showed jobless claims fell by 1,000 to 217,000 in the week ended October 27th.
IHS Markit’s Purchasing Managers’ Index or PMI is due out at 9.45 am ET.
The Commerce Department is scheduled to release the factory orders data for the month of September at 10 AM ET.
The Institute for Supply Management’s Services Index for October will be issued at 10.00 am ET. The consensus is for a reading of 55.4.
Europe
European stocks are notably lower, weighed down by a sharp 75-basis point interest rate hike by the Bank of England, and the Fed’s comments that it was “very premature” to think about pausing the tightening cycle.
The Bank of England’s nine-member Monetary Policy Committee decided to raise the bank rate to 3.00 percent from 2.25 percent. The rate is currently the highest since November 2008.
The BoE expects the economy to shrink 0.5 percent in the third quarter of 2022 and by 0.3 percent in the fourth quarter.
The UK economy is expected to remain in recession throughout 2023 and the first half of 2024. GDP is expected to recover only gradually thereafter.
In September, inflation rose 10.1 percent, the highest since the series began in January 1997.
Inflation is expected to pick up to around 11 percent in the fourth quarter of 2022. The near-term forecast was lower than was expected in the August Report.
Inflation is projected to fall sharply to around 5 percent by the end of next year and to fall below the 2 percent target in the medium term, although the Committee judged that the risks to the inflation projections are skewed to the upside.
Meanwhile, the UK service sector shrank in October for the first time since early 2021, final data from S&P Global showed.
The Chartered Institute of Procurement & Supply services Purchasing Managers’ Index posted 48.8 in October, down from 50.0 in September. This was the lowest score since January 2021 but above the flash reading of 47.5.
The euro area jobless rate dropped to a record low in September after remaining stable in the previous four months, data released by Eurostat revealed on Thursday.
The jobless rate fell to a seasonally adjusted 6.6 percent from 6.7 percent in August, which was revised up from 6.6 percent.
The U.K.’s FTSE 100 is down 0.74 percent, Germany’s DAX is declining 1.68 percent and France’s CAC 40 is down 1.29 percent. The pan European Stoxx 600 is dropping 1.77 percent.
Asia
Asian stocks followed Wall Street lower on Thursday, as investors reacted to hawkish comments from Fed Chair Jerome Powell on the outlook for inflation and rates, and China’s affirmation that a zero-tolerance approach continues to be the overall strategy in tackling COVID-19. Weak services sector data from China weighed as well.
China’s Shanghai Composite Index ended 0.19 percent down as China once again imposed lockdown in several cities across the country and also ramped up COVID restrictions to fight a surge in fresh cases.
Hong Kong’s Hang Seng tumbled 3.08 percent after a private survey showed China’s services sector shrank more than expected in October.
South Korea’s Kospi drifted down 0.33 percent, while Australia’s S&P/ASX 200 and the All Ordinaries Index dropped 1.84 percent and 1.77 percent, respectively.
The market in Japan was closed on account of Culture Day holiday.
