Wall Street stocks were subdued on Monday as investors braced themselves for the start of another US corporate earnings season, set against an increasingly gloomy economic backdrop.
The broad S&P 500 was broadly steady after the opening bell, while the tech-heavy Nasdaq Composite slipped 0.3 per cent. In Europe, the regional Stoxx 600 gauge added 0.1 per cent.
Those moves followed a sell-off on Wall Street on Friday, with the S&P closing down 2.8 per cent after a labour market report pointed to persistently strong jobs growth.
Such data have been scrutinised in recent months for clues about how aggressively the US Federal Reserve will raise interest rates, with signs of ongoing resilience in the labour market fuelling expectations of tighter monetary policy.
Monday’s muted activity in equity markets also came ahead of a flurry of third-quarter corporate earnings announcements, with Wall Street banks poised to lead the charge.
Investors will analyse companies’ financial statements for evidence of stress from stubbornly high inflation and rising borrowing costs, with fears intensifying this year that central banks will hoist interest rates into a recession — putting businesses across many sectors under even more strain.
Fresh US inflation data on Thursday will also shed light on the effectiveness of the Fed’s tightening efforts to date, after the central bank raised interest rates by an extra-large 0.75 percentage points over three consecutive meetings. A Reuters poll puts the consumer price index for the world’s largest economy at 8.1 per cent for September on an annual basis, compared with 8.3 per cent in August.
The US Treasury market was closed on Monday for a holiday. UK government bonds came under renewed pressure across all maturities, even after the Bank of England unveiled measures to ease strains on UK pension funds, including an increase to the limits on purchases within its emergency gilt-buying programme.
The central bank had stepped in to ease volatile trading in gilts after the government’s “mini” Budget last month triggered historic price swings in the debt instruments — particularly in longer-dated bonds. The initiative is due to end on Friday.
The yield on the 10-year UK government bond added 0.16 percentage points on Monday to 4.4 per cent, while the 30-year yield added 0.17 percentage points to 4.56 per cent. The two-year yield also surged higher, up 0.28 percentage points to 4.34 per cent. Bond yields rise as their prices fall.
“There’s a lot of focus on the fact that gilt purchases will indeed end at the end of this week,” said Antoine Bouvet, a rates strategist at ING. “The underlying fear is that the facility hasn’t been used much by pension funds — there are fears that there might be more selling once the purchases end.”
Trading in Asia was thin as Japan, South Korea and Taiwan were closed for public holidays. But Hong Kong’s Hang Seng lost almost 3 per cent and China’s mainland CSI 300 index fell 2.2 per cent, dragged lower by declines for chipmakers.
Last week, Washington launched new export controls to restrict Beijing’s plans for technological self-sufficiency by limiting the sales of semiconductors made with US technology, unless vendors obtain an export licence. US chipmakers had also come under pressure during Friday’s trading session after industry giant Advanced Micro Devices cut its revenue estimate.
Additional reporting by Hudson Lockett in Hong Kong
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