NEW YORK/MILAN, Dec 7 (Reuters) – World shares fell further on Wednesday and Treasuries fell as U.S. workers’ productivity data beat forecasts but extended a weak trend, further confounding debate over how much and how fast U.S. interest rates will rise. revenues fell.
Third-quarter productivity rebounded at a slightly faster pace than initially thought. Economists said the reading pointed to higher labor costs and inflation remaining high, adding pressure on the Federal Reserve to keep raising rates.
But benchmark U.S. yields and a weaker dollar both point to lower rates ahead.
“Slower rate hikes have been the global trend lately, but the Fed remains the wild card. Overall, it’s a volatile, anxious market ahead of next week’s Fed meeting,” said Joe Manimbo, chief market analyst at Convera in Washington.
The S&P 500 and Nasdaq fell in addition to the previous day’s sell-off as the big three U.S. banks warned of an impending recession. As the pace of future inflation remains uncertain, questions about how sticky inflation might be have added to uncertainty about the Fed’s policy path.
“If you look at previous decades when inflation was high, it usually takes a few years for inflation to moderate,” said Chris Dyer, director of global equities at Eaton Vance in London.
MSCI’s gauge of world stocks (.MIWD00000PUS) fell 0.42%, while the broad European STOXX 600 index (.STOXX) fell 0.62% to record its fourth straight decline as fears of a global recession intensified.
On Wall Street, the Dow Jones Industrial Average (.DJI) closed flat, the S&P 500 (.SPX) fell 0.19% and the Nasdaq Composite (.IXIC) fell 0.51%.
Many in the market believe inflation has moderated and bond yields have peaked, allowing central banks to begin slowing rate hikes when policymakers from the Fed, Bank of England and European Central Bank meet next week.
On Wednesday, the Bank of Canada signaled the end of its historic tightening campaign as it raised overnight interest rates by 50 basis points to 4.25%, reaching an almost 15-year high.
Earlier, the Reserve Bank of India raised the key lending rate by 35 basis points to 6.25%, slowing the pace of rate hikes, but warned that inflation could remain broad and high.
Fed Chairman Jerome Powell also warned that the fight against inflation is not over, but said late last month that the Fed may reduce the pace of rate hikes from December.
Powell’s comments led the market to price in a lower peak interest rate, which showed Fed funds on Wednesday at 4.918% next May, down from recent highs above 5.1%. Futures show a December 2023 terminal rate of 4.419%.
The yield on the 10-year Treasury note fell 9.2 basis points to a near three-month low of 3.421%. But bearish harbingers of the two-year and 10-year note inversions deepened at -84.5 basis points.
Gold prices rose as investors awaited a slower rate hike forecast at the Fed’s Dec. 13-14 meeting, helped by a retreating dollar and Treasury yields.
US gold futures rose 0.9% to $1,798 per ounce.
The dollar fell as traders assessed an uncertain economic outlook, while the Chinese yuan strengthened as authorities eased the country’s zero-covid-19 regulations.
The euro rose 0.37% to $1.0508, while the yen strengthened 0.44% to $136.45.
China’s national health authority has said asymptomatic COVID-19 cases and those with mild symptoms can self-treat while quarantined at home, the strongest sign yet that Beijing is preparing to deal with the disease.
Market reaction has been negative as the focus turns to how well China can implement its policy change.
“It’s hard to assume China’s reopening won’t lead to inflation when it’s the opposite for the rest of the world, and that’s going to be a problem going into 2022,” said Geoff Yu, strategist at BNY Mellon.
Oil fell to its lowest level since the start of the year in choppy trade after U.S. government data showed an unexpectedly large increase, feeding fears about demand in a market already spooked by an uncertain economy.
US crude oil fell by $2.24 to $72.01, while Brent oil fell by $2.18 to $77.17.
Reporting by Herbert Lash, additional reporting by Danilo Masoni in Milan; Tom Westbrook in Singapore; Edited by John Stonestreet, Nick Zieminski, and David Gregorio
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