US stocks fall as interest rates rise, Fed in focus

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  • Fed looms over broader markets, dollar rises
  • Oil falls on worry, US rail strike averted
  • Treasury yields rise while oil gold falls

NEW YORK, Sept 15 (Reuters) – Wall Street indexes were firmly in the red after a choppy start to Thursday’s session while bond yields rose as investors digested economic data that gave the Federal Reserve little reason to ease aggressive rate hikes.

Oil futures fell more than 3% on concerns and after a tentative deal that would avert a US rail strike, as well as continued strength in the US dollar on expectations of a big US interest rate hike. read more

Economic data showed that US retail sales unexpectedly rebounded in August as Americans increased purchases of motor vehicles and dined out more while taking advantage of lower gas prices. But data for July was revised downwards to show retail sales falling instead of flat as previously reported.

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Separately, the Labor Department said initial claims for state unemployment benefits fell for the week ending Sept. 10 to the lowest level since late May. read more

Investors widely expect an aggressive rate hike after the Federal Open Market Committee (FOMC) meeting next week, but are nervously awaiting hints from Fed Chair Jerome Powell about future policy moves, said Quincy Krosby, global chief strategist at LPL Financial.

“The market remains choppy knowing there is a Fed meeting next week. While participants agree there will be a 75 basis point rate hike, what the statement adds to previous comments and what Chairman Powell said at his press conference ” which they have worried, said Krosby.

The Dow Jones Industrial Average (.DJI) fell 173.07 points, or 0.56%, to 30,962.02; The S&P 500 (.SPX) lost 44.69 points, or 1.13%, to 3,901.32 and the Nasdaq Composite (.IXIC) fell 167.32 points, or 1.43%, to 11,552.36.

MSCI’s measure of global stocks (.MIWD00000PUS) fell 0.96% while emerging market shares (.MSCIEF) lost 0.57%.

Stocks, bonds and currencies on Thursday showed a market that “increasingly understands that the Fed is going to hike more aggressively next week,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina.

Referring in particular to the still strong labor market, Ladner said that “economic numbers released today put an end to the situation.”

Treasury yields rose from two-year highs to new 15-year highs, after data on retail sales and jobless claims showed a robust economy that gives the Fed plenty of room to aggressively raise interest rates.

Also already signaling a recession warning that the inverted yield curve – the gap between 2- and 10-year Treasury yields – widened further to -41.4 basis points, compared to -13.0 bps a week ago.

Benchmark 10-year notes were up 4.5 basis points at 3.457%, from 3.412% late Wednesday. The 30-year bond last fell on 5/32 to 3.4779%, from 3.469%. The 2-year note last fell in price on 5/32 to a yield of 3.8646%, from 3.782%.

“In this vicious cycle where the data continues to remain resilient, that would mean a Fed that is likely to stay the course and continue to tighten policy,” said Subadra Rajappa, head of U.S. interest rate strategy at Societe Generale in New York.

Also overshadowing investors’ mood on Thursday was the World Bank’s assessment that the world may be heading for a global recession as central banks around the world simultaneously raise interest rates to combat persistent inflation. read more

In currencies, the dollar was slightly higher against the yen while the Swiss franc reached its strongest level against the euro since 2015. read more

The dollar index, which measures the greenback against a basket of major currencies, rose 0.091%, with the euro up 0.18% to $0.9995.

The Japanese yen weakened 0.19% against the dollar to 143.44 per dollar, while Sterling last traded at $1.1469, down 0.57% on the day.

Ahead of the tentative labor deal, fears of a strike by US rail workers had supported oil prices on supply concerns on Wednesday. In addition, the International Energy Agency (IEA) said this week that growth in oil demand will stop in the fourth quarter.

US crude fell 3.82% to $85.10 a barrel while Brent ended at $90.84, down 3.46% on the day.

Gold fell to its lowest level since April 2021, hurt by high US Treasury yields and a firm dollar, as bets on another hefty Fed rate hike eroded bullion’s appeal.

Spot gold fell 1.9% to $1,664.46 an ounce. US gold futures fell 2.02% to $1,662.30 an ounce.

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Additional reporting by Herbert Lash in New York, Marc Jones in London, Stefano Rebaudo in Milan, Tom Westbrook in Singapore and Wayne Cole in Sydney; Editing by Kirsten Donovan and Jonathan Oatis

Our standards: Thomson Reuters Trust Principles.

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