Wall Street stocks extend declines as investors assess policy outlook

Wall Street stocks turned lower on Thursday, extending their losses as sentiment faltered following an upbeat start to the new month.

The S&P 500 was down 0.6 per cent by afternoon in New York after the broad index ended the previous session down 0.2 per cent, a decline that put the brakes on the strongest two-day advance for US equities in more than two years. The technology-heavy Nasdaq Composite was fell 0.2 per cent.

In Europe, the Stoxx 600 lost 0.6 per cent after the regional gauge closed 1 per cent lower on Wednesday.

Equities have sold off broadly in recent months, with last week capping the longest streak of quarterly losses since the 2008 financial crisis. As the US Federal Reserve and other central banks twist the screws on monetary policy to curb inflation, the prospect of ever higher borrowing costs has hit companies’ valuations.

At the same time, fears have intensified that the Fed and its peers will raise interest rates into a protracted slowdown, squeezing demand to the extent that they induce a global recession — and exacerbating the threat to businesses’ financial health.

Against that backdrop, investors have closely scrutinised economic data releases for clues about how much further rate-setters can hoist borrowing costs in the face of dwindling growth.

A report on Thursday offered fresh figures on the state of US unemployment, with first-time jobless claims coming in at 219,000 for the week ending October 1 — higher than the expected figure of 203,000 and up from 190,000 a week earlier.

That weaker than forecast picture came hot on the heels of a disappointing Tuesday release on job openings in the world’s largest economy, which had eased concerns over interest rate rises and, in turn, fuelled a rally in Wall Street equities.

Current market pricing reflects expectations of the main Fed interest rate peaking at 4.5 per cent in March 2023, down from estimates in late September of almost 4.7 per cent. The Fed’s current target range stands at between 3 per cent and 3.25 per cent after three straight extra-large increases of 0.75 percentage points.

The widely followed monthly jobs report from the US labour department is due on Friday. The temperature of the jobs market is seen as a crucial influence on Fed decision-making, with signs of loosening inspiring hope that the central bank will act with less vigour to contain inflation.

Government debt markets came under pressure on Thursday after days of sharp swings. The yield on the 10-year US Treasury note added 0.05 percentage points to 3.81 per cent, while the policy-sensitive two-year yield rose 0.08 percentage points to 4.23 per cent.

Moves were more pronounced in UK bonds, with the yield on the 10-year gilt adding 0.15 percentage points to 4.19 per cent as its price fell. The gilt market was last week gripped by crisis as the new British government’s “mini” Budget sparked fears over the extent of borrowing required to fund extensive tax cuts.

In currencies, the dollar added 0.9 per cent against a basket of six peers, extending gains from the previous session. The pound slid 1.3 per cent to $1.118 against the greenback, but continued to trade well above the record low of $1.035 that it tumbled to after UK chancellor Kwasi Kwarteng announced his fiscal plans on September 23.

“[We] think it’s too early to call a peak in Fed hawkishness or a top in the greenback,” said Mark Haefele at UBS. “The number of job openings in the US remains much higher than those unemployed, while the latest core personal consumption expenditure price index showed that inflation is still elevated.

“Fed officials, including chair Jerome Powell, have stressed that the central bank’s job is not yet done.”

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