NEW YORK (AP) – Shares rose at the start of trading on Wall Street on Tuesday, finding some stability the day after the bear market fell. A report showed that wholesale inflation slowed unexpectedly last month, rare encouraging news of inflation hitting markets in recent days. The S&P 500 rose 0.4% at the beginning, and government bond yields slowed their monstrous upward movement. There was also some positive news from American companies. FedEx jumped 9% after sharply raising its dividend, and business software maker Oracle jumped 10% after easily surpassing earnings forecasts.
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TOKYO (AP) – Global stocks fell on Tuesday after Wall Street fell into a bear market as investors anxiously considered a new and uncertain world of higher interest rates, international conflicts and fears of a recession.
Shares traded down in Europe, wiping short gains after markets opened, while Asian stocks fell but later recovered some gains.
The STOXX Europe 600 index fell 0.5% after opening up. The French CAC 40 fell 1.33%, the DAX fell 0.55% and the FTSE fell 0.4%. In Asia, Shanghai advanced, while Hong Kong finished insignificantly, and Tokyo declined.
Tuesday’s market action followed Monday’s bad headlines on Wall Street, where the benchmark S&P 500 lost 3.9%, dropping 21.8% below its peak. This meant a bear market when the index fell 20% or more from a recent peak over an extended period of time.
At the heart of the sell-off is the US Federal Reserve’s efforts to control inflation by raising interest rates. The Fed is struggling to control prices and its main method is to raise interest rates, but it is a stupid tool that can slow the economy too much and cause a recession. The war in Ukraine has led to sharply higher oil and food prices, fueling inflation and cutting consumer spending, especially in Europe.
“The old equilibrium before the crown, with low inflation, ultra-loose monetary policy and low geopolitical risk premiums, is no longer valid,” said Andreas Koester, head of portfolio management at Union Investment in Frankfurt, Germany.
“We are now in transition to a new equilibrium after the crown, which shows only the outlines, such as higher inflation or a return to competition from the great powers on the international stage,” Koester added.
However, the sharp decline may offer risk-averse investors the opportunity to win profitable deals. US stocks seemed to be recovering modestly as markets opened, with Dow Industrials’ future rising 0.05%. The future for the S&P 500 was 0.1% higher.
Some economists speculate that the Fed may raise its key interest rate by three-quarters of a percentage point at its meeting on Wednesday. That’s three times the usual amount and something the Fed hasn’t done since 1994.
“Global markets … are showing that they don’t like where the global economy is right now,” said Robert Carnell, regional head of ING’s Asia-Pacific Research Division.
Other central banks around the world, including the Bank of England, are also raising interest rates, while the European Central Bank has said it will do so next month and in September.
In addition to concerns about inflation and what central banks are doing to contain rising prices, restrictions on limiting the spread of COVID-19 in China also weigh on market sentiment in Asia.
The shift of central banks, especially the Fed, to higher interest rates has turned a massive rise in stock prices caused by massive support for markets since the pandemic hit in early 2020. Markets are preparing for even bigger than usual increases, on top of some discouraging signals for the economy and corporate profits, including a record low pre-reading of consumer sentiment, exacerbated by high petrol prices.
Higher interest rates increase the return on less speculative investments such as bonds, increasing their attractiveness to equities. And the planned moves will slow the economy by making borrowing more expensive.
The risk is that central banks could cause a recession if they raise interest rates too high or too fast. Last month, the Fed signaled additional interest rate increases of twice the usual amount, probably in the coming months. Consumer prices in the United States are at their highest level in four decades, up 8.6 percent in May from a year ago.
One of the most reliable warning signs of an economic recession is that US short-term bonds have yielded higher yields than long-term ones. This could be a sign of pessimism about the long term and a signal that a recession may be on the way.
Another factor influencing inflation and investor sentiment is the price of oil. It remained close to $ 120 a barrel on Tuesday, up about 60 percent this year.
The reference U.S. crude recovered from losses earlier Tuesday, rising 54 cents to $ 121.47 a barrel in e-commerce on the New York Mercantile Exchange. It rose 26 cents to $ 120.93 on Monday.
Brent crude, the international standard, rose 62 cents to $ 122.89 a barrel.
In foreign exchange trading, the dollar fell to 134.29 Japanese yen, from 134.46 yen late Monday. The euro costs $ 1.0446, compared to $ 1.0409.
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