Wall Street stocks eked out small gains on Wednesday after Federal Reserve chair Jay Powell pointed to the “possibility” of a recession but said the US economy could withstand tighter monetary policy.
The S&P 500 was 0.2 per cent higher by lunchtime in New York, trimming an earlier rise, after Powell began a two-day testimony to lawmakers. The moves extended gains from the previous session, when the S&P climbed 2.5 per cent as traders hunted for bargains following a steep weekly drop.
The technology-heavy Nasdaq Composite share index rose 0.3 per cent, but remained almost 30 per cent lower for the year.
Powell on Wednesday told the US Senate banking committee that “the American economy is very strong and well positioned to handle tighter monetary policy”. But he also warned of further surprises from inflationary trends. He said a recession was “certainly a possibility”.
The Fed last week raised its main interest rate by 0.75 percentage points, the most since 1994, after US consumer price inflation hit a 40-year high in May.
Money markets imply that the Fed will lift its main funds rate to about 3.6 per cent this year, with investors worrying that the combination of rising inflation and higher borrowing costs will threaten corporate profits and economic growth. The annual pace of US consumer price inflation rose to 8.6 per cent last month, after Russia’s invasion of Ukraine drove up energy and food prices.
On Thursday, closely watched purchasing managers’ indices produced by S&P Global — which collate executives’ responses to questions on topics such as input costs and order volumes — are expected to show that business activity has slowed in both the US and the eurozone.
“We look for both the manufacturing and services PMIs to provide further signs of weakening,” analysts at TD Securities said in a note to clients.
The yield on the 10-year US Treasury note, which moves inversely to its price, fell 0.12 percentage points to 3.16 per cent as demand for the low-risk asset rose. The note underpins pricing for global debt.
The equivalent yield on UK gilts dropped 0.15 percentage points to 2.49 per cent, after data showed British inflation rose to 9.1 per cent last month, increasing fears of a recession.
In Europe, the Stoxx 600 share index fell 0.7 per cent. A FTSE index of Asia-Pacific stocks outside Japan dropped 2 per cent with Tokyo’s Topix closing 0.2 per cent lower.
Japan’s yen also tumbled to a 24-year low of ¥136.71 against the dollar as traders bet on the Bank of Japan maintaining ultra-low borrowing costs, in defiance of the global trend.
Oil benchmark Brent crude, which has risen sharply this year as western powers imposed sanctions on Russian exports, dropped 2.8 per cent to $111.44 a barrel.
Additional reporting by Harriet Clarfelt
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