Global stocks struggled to orient themselves on Wednesday as investors balanced recession risks with hopes that the U.S. central bank might ease its plans for aggressive interest rate hikes.
Europe’s regional Stoxx 600 equity index gained 0.2% in morning trading, following a bruising session in stock markets on Tuesday after social media group Snap warned of macroeconomic conditions and investors spooked by disappointing U.S. housing and business survey data.
London’s FTSE 100 gained 0.3%, while futures trading implied Wall Street’s S&P 500 was down 0.2% at the New York open.
The Federal Reserve, which influences monetary policy around the world and releases the minutes of its early May rate-setting meeting later Wednesday, has sent strong signals that it will raise borrowing costs until that it has brought inflation under control, which has reached four-decade highs.
However, some analysts wonder how far the US central bank is willing to raise rates.
“Markets are telling us that recession risks are increasing,” said Mary Nicola, multi-asset portfolio manager at PineBridge Investments.
But if the Fed’s minutes of its latest rate-setting meeting included “language that suggests a pause, or that they’re concerned about growth, that obviously could really change the way markets are valued,” he said. she added.
Salman Baig, portfolio manager at Unigestion, said: “I wouldn’t be surprised if we started to see more language about looking at the data, and a bit of a pivot towards rambling. [rates] in June and July, then perhaps begins to reevaluate.
“It’s unlikely to be a really significant change at this point because they’ll want pretty clear indications that inflation has turned and we’re not there yet.”
New home sales in the United States fell nearly 17% in April, month-on-month, according to a report on Tuesday. Purchasing manager surveys also indicated that growth in business activity in the US and UK slowed in May.
Stocks sold sharply on Tuesday in response to the flurry of disappointing data, with Wall Street’s tech-heavy Nasdaq Composite closing down 2.3%.
Treasuries, which tend to react positively to expectations of lower interest rates on cash deposits, also rallied.
Last week, the S&P 500 dipped into bearish territory, defined as a 20% decline from a recent high, while the Nasdaq is around 30% below its November 2021 high.
The yield on the 10-year Treasury note, which underpins borrowing costs around the world and declines as the price of the debt instrument rises, fell 0.03 percentage points to 2.73 % in European morning trade on Wednesday, around a one-month low.
The two-year Treasury yield, which closely tracks interest rate expectations, traded at 2.51%, after rising above 2.8% in early May.
Elsewhere in the markets, a broad FTSE index of Asia-Pacific stocks added 0.2% as stock exchanges in Hong Kong, mainland China, South Korea and Australia all closed higher.
The euro lost 0.6% against the dollar to just under $1.07 as the rebound fueled by European Central Bank President Christine Lagarde signaling an end to negative interest rates in the euro zone has faded.
Brent, the oil benchmark, rose 1% to $114.7 a barrel.
