Aurelia Butler

NEW YORK (Reuters) – U.S. stocks ended sharply lower and Treasury yields headed higher on Friday as plunging chip stocks and mixed economic data dampened investors’ risk appetite, providing a downbeat ending to a tumultuous week.All three major U.S. stock indexes closed deep in red territory, with chipmakers weighing on the tech-laden Nasdaq.The S&P 500 and the Nasdaq reversed their weekly advances, while the blue-chip Dow ended the week nominally higher.The Philadelphia SE Semiconductor index slid 3.0% in the wake of a Reuters report that Taiwan’s TSMC asked major suppliers to delay delivery of high-end chipmaking equipment.On the economic front, data released on Friday was mixed, with import prices jumping, industrial production beating expectations and University of Michigan consumer inflation expectations cooling.Economic indicators this week have cemented expectations that the Federal Reserve will leave its key interest rate unchanged at the conclusion of next week’s monetary policy meeting, and fueled hopes that the central bank’s tightening cycle might have run its course.”There’s a tug of war going on between those who think inflation and interest rates are going to come down and the Fed is going to start cutting rates next year, and those who believe that inflation is going to stay well above the Fed target for a while and therefore rates will stay higher for longer,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.Financial markets have priced in a 97% likelihood that the central bank will hold the Fed funds target rate at 5.25%-5.00% when it announces its decision next Wednesday, and a 68.5% likelihood of it doing the same at the conclusion of its November meeting, according to CME’s FedWatch tool.”If we get a pause in September and November, that could lead to a nice year-end rally, which will feed the belief that the next move by the Fed will be a rate cut in 2024,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. The Dow Jones Industrial Average fell 288.87 points, or 0.83%, to 34,618.24, the S&P 500 lost 54.79 points, or 1.22%, to 4,450.31 and the Nasdaq Composite dropped 217.72 points, or 1.56%, to 13,708.34.European stocks closed higher, extending a rally sparked by the European Bank signaling an end to its rate-hiking cycle, and logging a weekly gain.The pan-European STOXX 600 index rose 0.23% and MSCI’s gauge of stocks across the globe shed 0.63%.Emerging market stocks rose 0.33%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.58% higher, while Japan’s Nikkei rose 1.10%.Treasury yields rose ahead of the Federal Reserve policy meeting next week, with two-year yields edging above the 5% threshold amid worries that restrictive interest rates will be in place for longer than expected.Benchmark 10-year notes last fell 10/32 in price to yield 4.3304%, from 4.29% late on Thursday.The 30-year bond last fell 17/32 in price to yield 4.4182%, from 4.385% late on Thursday.The dollar inched lower against a basket of world currencies, but nabbed its ninth straight weekly gain.The dollar index fell 0.08%, with the euro up 0.16% to $1.0658.The Japanese yen weakened 0.28% versus the greenback at 147.89 per dollar, while Sterling was last trading at $1.2382, down 0.22% on the day. Oil prices continued to climb, notching their third consecutive weekly gain on supply tightness and optimism that the Chinese economy is gaining strength.U.S. crude rose 0.68% to settle at $90.77 per barrel, while Brent settled at $93.93, up 0.25% on the day.Gold prices surged, bouncing off three-week lows in opposition to softness in the greenback.Spot gold added 0.7% to $1,922.69 an ounce. More

NEW YORK (Reuters) – The end of the Federal Reserve’s rate hiking cycle has generally been a good time to own U.S. stocks, but an uncertain economic outlook and stretched valuations could dampen upside this time around.After raising borrowing costs by 525 basis points since March 2022, the U.S. central bank is widely expected to keep rates unchanged at the conclusion of its meeting next week. Many investors believe that policymakers are unlikely to raise rates any further, bringing an end to the central bank’s most aggressive monetary policy tightening cycle in decades.If they are right, stocks could be poised for more gains. After the Fed’s past six periods of credit tightening, the S&P 500 rose an average of 13% from the final rate hike to the first cut in the following cycle, an analysis by financial research firm CFRA showed.Investors with a more bearish view, however, say it is only a matter of time before higher rates tighten economic conditions and bring a downturn. The S&P 500 is already up over 16% this year, aided in part by a U.S. economy that has stayed resilient in the face of higher interest rates.”The market will probably cheer it a bit if it is the end of the Fed rate hike cycle,” said Brent Schutte, chief investment officer at Northwestern (NASDAQ:NWE) Mutual Wealth Management Company.However, “I don’t think the economy is going to stay out of a recession and that is going to be what ultimately decides the direction of stocks,” said Schutte, whose firm favors fixed income over equities.Though most investors believe a recession is unlikely in 2023, a slowdown next year remains a possibility for some market participants. One worrying recession signal has been the inverted Treasury yield curve, a market phenomenon that has preceded past downturns.The Fed will give its policy statement on Wednesday, with odds at 97% that it will keep rates unchanged, according to the CME FedWatch Tool, which tracks bets on futures tied to the central bank’s policy rate. Traders see a roughly two-out-of three chance of the Fed leaving rates unchanged in November, CME’s data showed.Odds for December show about a 60% chance rates of rates staying at current levels.PEAK RATES?Fed Chair Jerome Powell said last month that the central bank may need to raise rates further to cool inflation, promising to move carefully at upcoming meetings.More of the kind of generally benign inflation data that has come over the last few months, however, could mean the Fed’s quarter-point increase in July was the last in a cycle that shook asset prices last year.”If Wall Street comes to the conclusion that the Fed has ended its rate tightening program, that would at least offer support if not give (stocks) an additional catalyst to keep working higher,” said Sam Stovall, CFRA’s chief investment strategist.Investors are also attempting to gauge when the Fed will begin easing monetary policy. CFRA found that the Fed has tended to cut rates an average of nine months after its last rate increase, with the S&P 500 gaining an average of 6.5% in the six months following the cut.Investors are pricing in a small chance of a cut as early as the Fed’s January meeting, with expectations of a cut at about 35% for May, according to the CME data.Some investors, however, see challenges for the stock market even if the Fed is done hiking.Analysts at Oxford Economics forecast further downside for global earnings, noting that stocks “have typically delivered far weaker returns following the final Fed rate hike when it has coincided with an EPS downturn.”Oxford and other investors are also wary of stock valuations, which have ballooned this year. The S&P 500 is trading at about 19 times forward 12-month earnings estimates versus 17 times at the start of the year and its long-term average of 15.6 times, according to LSEG Datastream. Equity valuations are also threatened by the rise in bond yields, which has increased the attraction of fixed income as investment alternative to stocks. The yield on the 10-year Treasury is close to over 15-year highs. “If (the Fed) came out and said ‘we’re done,’ yeah I do think that is probably cause for some celebration,” said Jack Ablin, chief investment officer at Cresset Capital. “But I’m not sure how sustainable it would be given where stocks are valued relative to bonds already.” More

WASHINGTON (Reuters) -The International Monetary Fund plans to tell China to boost weak domestic consumption, address its troubled real estate sector and rein in local government debt, problems that are dragging down both Chinese and global growth, IMF Managing Director Kristalina Georgieva told Reuters.Georgieva said in an exclusive interview the messages will be delivered to Chinese authorities in a forthcoming IMF “Article IV” review of China’s economic policies. The Fund will strongly urge Beijing to shift its growth model away from debt-fueled infrastructure investment and real estate, she said.”Our advice to China is use your policy space in a way that helps you shift your growth model towards more domestic consumption,” Georgieva said. “Because the traditional way of infrastructure, pumping in more money, in this current environment is not going to be productive.”China’s aging population and falling productivity were playing a “suppressing role” in its growth rate, along with companies in the United States and Europe shifting supply chains away from China. China’s problems in the real estate sector have also caused consumers to rein in spending, Georgieva said. “We actually project that without structural reforms, medium term growth in China can fall below 4%,” Georgieva said. The IMF in July forecast China’s 2023 growth rate at 5.2% and 4.5% in 2024, but warned it could be lower given the contraction in real estate. Georgieva also said it was important for China to address consumer confidence in its real estate sector by financing the completion of apartments that buyers have already paid for, rather than bailing out troubled developers. ANEMIC GLOBAL GROWTH The IMF is preparing to issue a new set of global growth forecasts ahead of IMF and World Bank annual meetings Oct. 9-15. Georgieva said separately the institutions would decide on Monday whether to proceed with the meetings in earthquake-hit Morocco.The new forecasts are expected to reflect concerns about anemic GDP growth around the world, as most large economies are still lagging pre-pandemic growth rates. The United States is the only large economy to have recovered pre-pandemic growth, while China is four percentage points below pre-pandemic trends, Europe down two percentage points and the world down three percentage points. With China generating about a third of global growth this year, its growth rate “matters to Asia, and it matters to the rest of the world,” Georgieva said. Asked about U.S. Commerce Secretary Gina Raimondo’s recent comment that some U.S. firms viewed China as “uninvestible”, Georgieva said: “There is some outflow from China. It is a trend that we need to carefully monitor, how it evolves over time.”She added there were some areas – including digital economy and green technologies – that remained attractive for investors. She cautioned it was important to ensure China’s big push on electric vehicles was not done using subsidies in a way that created unfair competition. More