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GLOBAL MARKETS-Stocks slide as corporate results spur recession feats

A gauge of global equity markets slid from five-month highs on Wednesday as poor corporate results fueled recession fears, as did the ongoing inversion of short- and long-dated Treasury yields – a harbinger of economic downturns.

January 26, 2023
By Herbert Lash
26 January 2023

By Herbert Lash

NEW YORK, Jan 25 (Reuters) – A gauge of global equity
markets slid from five-month highs on Wednesday as poor
corporate results fueled recession fears, as did the ongoing
inversion of short- and long-dated Treasury yields – a harbinger
of economic downturns.

But main indexes on Wall Street sharply pared losses,
suggesting that many believe a downturn, coupled with rising
unemployment, will lead the Federal Reserve to back off its
aggressive monetary tightening and soon cut interest rates.

Short-dated Treasury yields have been inverted, or higher
than longer-dated government debt, for some time. The yield
curve on three-month bills and 10-year notes narrowed on
Wednesday, but was still deeply inverted at -121.7 basis points.

“Every recession has been preceded by some type of yield
curve inversion,” said Joseph LaVorgna, chief U.S. economist at
SMBC Nikko Securities in New York.

But with the Fed’s overnight borrowing rate at 4.25%-4.5%,
it’s “restrictive” and slowing growth, potentially causing large
job losses in the next month or two and lead the U.S. central
bank to cut interest rates by mid-year, he said.

“I could be right about the economy and the labor market,
but the Fed may still say we’re going to drive the economy lower
until there’s no fear that inflation is going to kick back up.”

Corporate America also signaled trouble ahead. Boeing’s
downbeat results on Wednesday amid ongoing supply chain
constraints added to slower growth concerns, while Microsoft
Corp warned its customers were cautious about spending
in an uncertain economy in a lackluster outlook late Tuesday.

Futures are pricing in a 94.7% probability of a 25 bps hike
when Feb policymakers end a two-day meeting on Feb. 1.

The yield on 10-year Treasury notes was down 0.3
basis points to 3.464%, but well below the Fed’s projection that
its target rate will stay above 5% into next year.

Two out of three Americans say they’re more concerned about
paying bills than saving for their financial future, said Johan
Grahn, head of ETFs at Allianz Investment Management in
Minneapolis, citing a survey done by his company.

While the U.S. central bank will make some changes, “they’re
not significant enough to scare the Fed away from its stated
marching orders,” Grahn said. “The enemy is inflation, the
catalyst is the labor market and that’s the bottom line.”

The Dow Jones Industrial Average fell 0.09%, the S&P
500 slid 0.17% and the Nasdaq Composite skidded

Trade in European stocks was lacklustre, as signs of an
improving economic outlook in the euro zone fed worries about
further rate hikes.

The broad pan-European STOXX 600 index lost 0.29%
and MSCI’s gauge of global stock performance
shed 0.01% after trading much lower most of the day.

Markets have been buffeted by the fastest tightening of
monetary policy since the 1980s.

The Bank of Canada signaled it would likely halt further
hikes after lifting its key interest rate to 4.5% on Wednesday.

Earlier the Australian dollar hit a five-month high as
rising inflation data bolstered the case for another rate
increase from the Reserve Bank of Australia (RBA) next month.

The Canadian dollar fell 0.09% versus the greenback at 1.34
per dollar after the central bank’s outlook.

The Australian dollar surged to $0.7123 after the
latest inflation data. Australia’s currency is up 1.6% this week
and is poised for its biggest weekly gain in more than two

The euro was up 0.19% to $1.0906.

In Asia, MSCI’s broadest index of Asia-Pacific shares
outside Japan hit a seven-month high. Trading
volume was depressed as Chinese and Taiwanese markets were still
closed for the Lunar New Year holiday.

Data showing German business morale brightened in January
did little to push the single currency higher for now.

Germany’s Ifo institute said its business climate index rose
to 90.2, in line with the consensus, according to a Reuters poll
of analysts, and up from 88.6 in December.

Oil prices settled largely unchanged after government data
showed a smaller-than-anticipated build in U.S. crude
inventories, countering weak economic data from Tuesday.

Brent crude futures settled at $86.12 a barrel, down
a cent, while the U.S. West Texas Intermediate (WTI) crude
futures settled at $80.15 a barrel, down by two cents.

Gold reversed course to edge up as the dollar weakened and
investors kept a close eye on a slew of upcoming U.S. economic
data that could influence the Fed’s policy meeting next week.

U.S. gold futures settled up 0.4% to $1,942.60 an

(Editing by Bernadette Baum, William Maclean)

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