US stocks fell on Tuesday morning as investors weighed the path of rate increases ahead of the Federal Reserve's policy decision midweek. The S&P 500 fell 15.88 points, or 0.4 percent, to 3,856.10 after the session began higher. The Dow Jones Industrial Average fell 79.75 points, or 0.2 percent, to 32,653.20. The Nasdaq Composite lost 97.30 points, or 0.9%, at 10890.85.
The Fed’s efforts to tamp down inflation by lifting interest rates sharply has punished stocks for most of the year. The S&P 500 is 19 percent lower in 2022, and the Dow industrials have slide by around 10 percent.
Over the past few weeks, however, the major indexes have risen in part on expectations that the Fed might start easing off its monetary tightening through the end of the year. The Dow recorded its strongest monthly showing since 1976 as October drew to a close. It was up 14% for the month while the S&P gained 8%.
A soft reading on the labor market Tuesday morning muddied the outlook. The major averages fell after the latest data on job openings showed more open positions than expected, adding to fears that the Fed will continue to raise interest rates aggressively given the torrid labor market. U.S. job openings surged to a record 10.7 million in September, the Labor Department said.
"Good news is bad news these days. We would probably want to see some moderation in the economy so that inflation could begin to drop and that the fed would be able to at least not have to accelerate its actions and its messaging,” said Marco Pirondini, head of equities and portfolio manager at Amundi US.
The central bank is widely expected to announce a further 0.75-percentage-point rate increase at the conclusion of its two-day monetary policy meeting. A half-dozen Fed officials have indicated that they could support a smaller half-point lift in rates in December.
Any comments from the Fed chairman, Jerome Powell, after the meeting concludes on Wednesday could provide clues about if the Fed is prepared to shift course on monetary policy.
COMMODITIES
Brent crude oil rewarded 1.84% to US$94.52 a barrel, gold rewarded 0.80% to US$1,647.26.
Locally, the Australian 2y government bond yield fell to 3.18% and the 10y increased to 3.76%. 4.55% overseas the yield on the 2 year US treasury notes and the yield on US 10Y treasury notes was at the 4.05%.
The Australian dollar fell to 63.96 US cents, from 63.95 at Monday’s close. The Wall Street Journal Dollar Index, which measures the U.S. currency against 16 others slipped to 103.60.
Asia
Chinese stocks surged on hearsay in social media that China is planning to ease Covid-19 restrictions in 2023, according to market participants. Most stocks were up with the travel firms, consumption sector and food producers leading the gainers. BTG Hotels Group gained 8.7% and China Tourism Group Duty-Free increased 10%; liquor-maker Kweichow Moutai was up 8.3%, halting a recent losing streak. The Shanghai Composite Index inched up in early trade and surged higher in the afternoon to close up 2.6% at 2977.56. The Shenzhen Composite Index rose 3.0 percent, and the ChiNext Price Index increased 3.2 percent.
In Hong Kong, the Hang Seng Index was up 1.7% to 14934.99 in early trade, shaking off Monday's losses to open the month on a positive note after slumping 15% in October. Pharma and tech stocks lead a broad boost to the market. CSPC Pharma and Sino Biopharma are both rising by more than 4%, with Meituan up 3.6% and Alibaba Group rising 2.8%. Chinese property developers are a mixed bag given a bleak industry outlook. CIFI Holdings tumbles 21% after the developer announced it has stopped paying offshore debt after discussions with creditors failed. Country Garden Holdings is 3.0% higher even as Fitch Ratings downgrades it; Longfor Group is 4.9% lower after plummeting 24% on Monday.
In Japan, the Nikkei Stock Average rose 0.3% to 27678.92 on continued expectations of a strong earnings rebound. Shares in the aviation industry were higher, with Japan Airlines climbing 1.0% and ANA up 2.5%. Japan Tobacco Inc. shares advanced 9.5% even after the company reported that higher sales and product-price hikes lifted its quarterly profit. Toyota Motor was down 1.9% after 2Q net profit missed analysts’ estimates. The dollar was at 148.16 yen, from 148.74 yen in late trading Monday in New York. The 10-year Japanese government bond yield ticked up half-a-basis point to 0.245%.
Europe
European stocks were up as Asia trading was mostly positive and as the United States was expected to open higher. The Pan-European Stoxx Europe 600, French CAC 40 and German DAX rise more than 1%.
On Tuesday, the FTSE 100 Index finished higher by 1.3%, or 91.6 points, at 7186, outpacing its European counterparts, bolstered by commodities stocks and a leap by Ocado’s shares. Miners gained on rises in iron, copper and nickel prices as investors ignore extended recession and China shutter concern, says IG senior market analyst Joshua Mahony in a note. Among the biggest blue-chip risers were Anglo American and Glencore, up 6%, and Antofagasta, which rose 4.9%. The gains leader was online grocer and retail technology specialist Ocado, which surged by 40% following news that the group had reached an agreement for its warehousing-technology offering with a retailer trading in South Korea. The declines were led by Rentokil, which fell 4.3% after reporting a decline in sales for its disinfection service during the third quarter.
North America
Stocks in the US fell on Tuesday as investors took a stand on the pace of increases in interest rates before the release on Wednesday of the Federal Reserve’s policy decision.
The S&P 500 slipped 15.88 points, or 0.4 percent, to 3,856.10 after starting the day slightly higher. The Dow Jones Industrial Average slid 79.75 points, or 0.2%, to 32,653.20. The Nasdaq Composite lost 97.30 points, or 0.9%, to 10890.85.
The central bank’s efforts to tame inflation by raising interest rates sharply have battered stocks for most of the year. The S&P 500 is off 19% this year, and the Dow industrials are down roughly 10%.
The major indexes have rebounded late last week and this week, however, in part on hopes that the Fed may start to ease up on its monetary tightening between now and the end of the year. The Dow ended October with its best monthly gain since 1976. It gained 14 percent for the month, while the S&P 500 was up 8 percent.
A slightly negative labour-market reading Tuesday morning had dampened the outlook. The major averages slipped after the latest job openings numbers were stronger than expected, fanning concerns that the Fed would continue to aggressively lift interest rates because of the hot labour market. Job openings in the United States surged to 10.7 million in September, the Labor Department reported.
“Good news is bad news these days. We probably would like to see some slowdown in the economy before inflation starts to come down and the Fed is in the position to slow down its actions and its language," Marco Pirondini, head of equities and portfolio manager at Amundi US, said.
The central bank is widely expected to report another 0.75-percentage-point rate increase at the conclusion of its two-day monetary policy meeting. A few Fed officials have indicated they could think about a less half-point rate increase in December.
It’s possible that whether the central bank will shift course on monetary policy could depend on comments from Federal Reserve Chairman Jerome Powell after the meeting ends Wednesday.
“So this recent rally could leave us vulnerable to a little bit of a disappointment if we don’t get the language on a pivot. We probably open lower off Powell’s comment tomorrow,” said Liz Young, head of investment strategy at SoFi.
Investors were also sifting through the latest batch of corporate earnings updates. Shares of Uber were up $3.18, or 12 percent, to $29.75, after the ride-sharing company said revenue increased in the last quarter.
The nation’s biggest corporations have delivered mixed results during this earnings season. Some industries are doing better than feared in the face of both rising interest rates and inflation. Some bellwether tech companies, though, reported disappointing sales and are being crushed by higher rates.
On the whole, S&P 500 companies are expected to report a 3% rise in third-quarter earnings from a year earlier, based on FactSet data combining actual results and estimates for companies yet to report. With roughly 62% of the index’s constituents having reported earnings as of Tuesday’s close, 72% have exceeded analysts’ estimates, compared with a five-year average of 77%.
As the business environment grows more onerous, analysts are cutting their estimates for fourth-quarter and 2023 profits. Consensus expectations for earnings growth in the fourth quarter dropped from about 9% at the end of June to less than 1%, according to FactSet.
Recent stock-market advances are likely to fizzle out as the lagged impact of global interest-rate hikes and rising inflation takes hold in early 2019, according to Hani Redha, a portfolio manager at PineBridge Investments.
“We are in the phase when we are hoping that we will see our way through this mess, with all these very extreme distortions, with as little pain as possible people always hope,” Mr. Redha said. “The passage to a recession often looks like a soft landing,” he said, referring to a scenario in which rate increases slow the economy without tipping it into recession.
