US stocks and oil prices dropped on Thursday as investors scrutinised economic data for clues about how aggressively the Federal Reserve will raise interest rates to curb inflation.
The broad S&P 500 gauge was down 0.6 per cent by the late morning in New York. The technology-heavy Nasdaq Composite lost 0.9 per cent. European equities also slipped, with the regional Stoxx 600 index declining 0.6 per cent.
Those moves came as fresh reports on the US labour market and retail sales gave mixed signals about the health of the world’s largest economy, less than a week before the Fed announces its next monetary policy decision.
First-time jobless claims in the US came in lower than expected on Thursday, at 213,000 for the week ending September 10 — down from 218,000 for the week prior and lower than economists’ forecasts of 226,000. Those data pointed to a tight labour market, one of the factors taken into account by the Fed as it strategises on borrowing costs.
At the same time, retail sales for August were hotter than anticipated — rising 0.3 per cent month on month, compared with expectations of zero growth. July’s figure was revised downwards to show a decline of 0.4 per cent.
Earlier this week, hotter than expected US inflation data had spurred investors to crank up their estimates of how far and fast the Fed would increase rates to cool demand.
Markets are now pricing in a one-in-four chance that the US central bank will hoist rates by a full percentage point next week, slightly lower than the one-in-three chance priced in immediately after the inflation report. Such an increase would follow two consecutive rises of 0.75 percentage points.
“After a high inflation reading earlier in the week, the Fed needed some good news, and it was not forthcoming from the retail sales data,” said Neil Birrell, chief investment officer at Premier Miton Investors.
“They really could have done with seeing the consumer spending considerably less to take the pressure off rate hikes. The debate over 75 basis point or 100 basis point will run right up [to] the announcement and even then, thoughts will move straight on to the following meeting and probably the one after that as well.”
The prospect of aggressive monetary policy tightening by the Fed has intensified pressure on currencies in Asia, where some central banks have maintained a much looser stance.
Offshore renminbi — traded outside the country’s mainland markets — lost as much as 0.6 per cent on Thursday to pass 7 against the greenback for the first time since July 2020. Japan’s yen hovered around its weakest point in 24 years, while South Korea’s won traded at levels last seen in March 2009.
In a sign of traders anticipating more assertive Fed action on price growth, government debt markets came under pressure on Thursday with the yield on the policy-sensitive two-year US Treasury note rising 0.07 percentage points to 3.85 per cent. Germany’s two-year Bund yield added 0.13 percentage points to 1.52 per cent. Bond yields rise as their prices fall.
Meanwhile, oil prices fell sharply on Thursday amid mounting fears of recession and a slowdown in energy demand, with international benchmark Brent down more than 3 per cent to $91.24 a barrel. US oil prices were off 3 per cent to just over $86 a barrel.
International oil prices have plunged more than 30 per cent since reaching a 14-year high just after Russia’s invasion of Ukraine triggered sanctions and raised fears of global supply shortages.
US natural gas prices tumbled, with the front-month contract down 8 per cent on Thursday in New York, to $8.42 per million British thermal units. The sell-off followed news that a rail strike in the US had been averted, easing fears that the strike would threaten supplies of coal and prompt a scramble for natural gas to feed power stations.