U.S. stocks stabilized on Wednesday after three straight days of declines fueled by hawkish messages from the U.S. Federal Reserve and concerns about aggressive interest rate hikes.
The broad gauge S&P 500 was flat late morning in New York, having pared earlier gains. The tech-heavy Nasdaq Composite rose 0.1%. Both indexes had closed the previous session down 1.1%, extending the falls after central bankers redoubled their commitment at the Jackson Hole conference last week to fight inflation, even in the face of growth. stuttered economy.
Wednesday’s moves came on the last day of the month, a time when portfolio rebalancing can contribute to volatility.
European stocks closed lower, with the regional Stoxx 600 gauge down 1.1% following worse-than-expected eurozone inflation data for August. Figures released earlier in the session showed consumer price growth hit a record 9.1% this month, beating economists’ expectations of 9%. The July reading came in at 8.9%.
The data propelled German and UK government bond yields even higher as investors continued to look for clues as to how much and how quickly the ECB and Bank of England would raise borrowing costs to bring inflation under control, which has been fueled by a growing energy crisis.
Both debt markets closed one of the worst months in their history. The yield on the 10-year German Bund, seen as an indicator of borrowing costs in the euro zone, climbed more than 0.7 percentage points in August to trade at 1.54%, reflecting its higher monthly rise since 1990. The two-year Bund yield, which closely tracks interest rate expectations, posted its biggest jump in more than four decades, rising 0.05 percentage points on Wednesday to 1 .2%.
In the UK, yields on short-term gilts gained 1.29 percentage points in August, their biggest rise since 1994, jumping 0.11 percentage points on Wednesday to 3.01%. Bond yields rise as their prices fall.
“The further increases in headline and underlying inflation in August, and [the] likelihood that they will continue to rise, will add pressure on the ECB to accelerate the pace of tightening. The balance of probabilities is shifting towards a 75 basis point rally next week,” wrote Jack Allen-Reynolds, senior European economist at Capital Economics, after the release of the eurozone data.
The ECB raised borrowing costs in July for the first time in more than a decade from a surprisingly high 0.5 percentage points to zero.
Some economists have warned that euro zone inflation will top 10% in the fall and stay higher for longer due to soaring gasoline prices. Futures contracts linked to TTF, Europe’s wholesale gas price, fell as much as 9.9% to €239 per megawatt-hour on Wednesday, before recovering their losses to end up 4.8%.
Russia halted gas flows to Europe via the critical Nord Stream 1 pipeline on Wednesday as Gazprom began three days of planned maintenance on the line.
US government debt was relatively stable on Wednesday, with the benchmark 10-year Treasury yield holding steady at 3.12%.
Investors will be watching jobs data due out Friday for evidence of a hotter labor market in the world’s largest economy – a scenario that could in turn prompt the Fed to maintain its aggressive stance on monetary policy. Conversely, signs of cooling may spark debate over the justification for raising rates during a recession.
Economists expect U.S. employers added 300,000 new jobs in August, up from 528,000 last month.