European shares and US stock futures turned lower on Thursday, extending their declines as sentiment faltered following an upbeat start to the new month.
The Stoxx 600 slipped 0.2 per cent, reversing earlier gains, after the regional European gauge closed 1 per cent lower on Wednesday. Contracts tracking Wall Street’s S&P 500 fell 0.8 per cent after the broad index ended the previous session down 0.2 per cent, in a decline that put the brakes on the strongest two-day advance for US equities in more than two years.
Equities have sold off broadly this year, with last week capping the longest streak of quarterly losses since the 2008 financial crisis. As the US Federal Reserve and other central banks twist the screws on monetary policy to curb inflation, the prospect of ever higher borrowing costs has hit companies’ valuations.
At the same time, fears have intensified in recent months that the Fed and its peers will raise interest rates into a protracted slowdown, squeezing demand to the extent that they induce a global recession — exacerbating the threat to businesses’ financial health.
Government debt markets came under renewed pressure in European morning dealings, with the yield on the 10-year UK gilt adding 0.14 percentage points to 4.18 per cent as its price fell. The gilt market was last week gripped by crisis as the new British government’s “mini” Budget sparked fears over the extent of borrowing required to fund extensive tax cuts.
The intensity of the selling eased last Wednesday, when the Bank of England intervened to calm the turmoil — but trading has been volatile in the days since.
The equivalent 10-year US yield, seen as a global benchmark for borrowing costs, added 0.02 percentage points to 3.78 per cent.
Fresh data on Thursday will offer further clues about the state of unemployment in the world’s largest economy, with first-time jobless claims expected to come in at 203,000 for the week ending October 1, up from 193,000 a week earlier. The widely followed monthly jobs report from the labour department is due on Friday.
The level of heat in the labour market is widely seen as a key influence on Fed decision-making, with signs of weakness inspiring hopes that the central bank will act with less vigour to contain inflation.
Market pricing currently reflects expectations of the main US interest rate peaking at 4.5 per cent in March 2023, down from expectations in late September of almost 4.7 per cent. The Fed’s current target range stands at 3 to 3.25 per cent after three straight extra-large increases of 0.75 percentage points.
Various Fed officials were also due to speak on Thursday. Their remarks will be assessed closely for any pointers on the likelihood of a pivot towards a less assertive policy strategy.
In currencies, the dollar added 0.4 per cent against a basket of six peers after advancing more than 1 per cent in the previous session. The pound slid 0.6 per cent to hit $1.125 against the greenback, remaining around the levels it traded at before UK chancellor Kwasi Kwarteng unveiled his fiscal plans on September 23.
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