US stocks resumed their sell-off overnight as new economic data reignited fears of more steep interest rate rises by the US central bank, and the World Bank warned of a global recession.
- The Dow Jones index fell 0.6pc to 30,962, the S&P 500 lost 1.1pc to 3,901, and the Nasdaq Composite fell 1.4pc to 11,552
- The FTSE 100 index rose 0.1pc to 7,282, the DAX in Germany fell 0.6pc to 12,956, and the CAC 40 in Paris lost 1pc to 4,662
- At 6:30am AEST, the Australian dollar fell 0.7pc to 66.97 US cents, while the ASX SPI 200 index fell 0.8pc to 6,790
It was a volatile trading session as stocks initially rose after US President Joe Biden announced a “tentative deal” with unions to avert a rail strike.
Economic data showed retail sales rebounded in August as consumers bought more cars and ate out amid lower gasoline prices.
But revised numbers showed that sales fell in July.
And the US Labor Department said initial claims for state unemployment benefits fell last week to the lowest level since the end of May.
Investors are expecting a large rate hike by the Federal Reserve next week, possibly as high as 1 percentage point.
“The market remains choppy knowing that there’s a Fed meeting next week,” said Quincy Krosby, chief global strategist at LPL Financial.
“Even though participants agree it’ll be a 75-basis point rate hike, it’s what the statement adds to previous commentary and what [Chairman Jerome] Powell says in his press conference.”
The Dow Jones Industrial Average closed at its lowest level in two months.
Banks and healthcare stocks made gains, but technology and energy stocks led the falls.
The Dow fell 0.6 per cent to 30,962, the S&P 500 lost 1.1 per cent to 3,901, and the Nasdaq Composite fell 1.4 per cent to 11,552.
Oil prices slumped on the news about the deal with railway workers.
Brent crude oil fell 3.6 per cent to $US90.71 a barrel, while West Texas crude lost nearly 4 per cent to $US85.03 a barrel.
Spot gold fell to its lowest since April 2021 as US Treasury yields and the greenback rose on expectations of a steep US rate hike next week.
The Australian dollar was also sold off.
At 6:30am AEST, it was down 0.7 per cent to 66.97 US cents.
The local currency has seen a big decline since reaching a high of 69.16 US cents this week.
The Australian share market is expected to fall today, with the ASX SPI 200 index down 0.8 per cent to 6,790 at 7:00am AEST.
European stocks ended mainly lower with oil and technology shares declining the most.
The FTSE 100 index rose 0.1 per cent to 7,282, the DAX in Germany fell 0.6 per cent to 12,956, and the CAC 40 in Paris lost 1 per cent to 4,662.
World Bank warns of recession
The World Bank said the world could be edging towards a global recession as central banks increase interest rates to combat surging inflation.
In a new report, the bank said the world’s largest economies, the US, China and the euro area, had been slowing down and even a “moderate hit to the global economy over the next year could tip it into recession”.
“Global growth is slowing sharply, with further slowing likely as more countries fall into recession,” said World Bank president David Malpass.
The bank said the global economy was in the steepest slowdown following a post-recession recovery since 1970, and consumer confidence had dropped more quickly than in the lead up to previous global recessions.
However, it noted that rate rises by central banks were likely to continue, but that may not be enough to bring inflation down.
It said the global core inflation rate could stay at around 5 per cent in 2023, nearly double the five-year average before the pandemic.
The bank said central banks may need to raise interest rates by an extra 2 percentage points, on top of the average 2 percentage point increase seen in 2021.
However, that could slow global gross domestic product to 0.5 per cent next year, causing a recession.