Wall Street stocks subdued as investors assess policy outlook

Wall Street stocks were subdued on Thursday, extending a lull as sentiment faltered following an upbeat start to the new month.

The S&P 500 lost 0.1 per cent in early trading, after the broad index ended the previous session down 0.2 per cent — a decline that put the brakes on the strongest two-day advance for US equities in more than two years. The technology-heavy Nasdaq Composite made muted gains.

In Europe the Stoxx 600 slipped 0.4 per cent, after the regional European gauge closed 1 per cent lower on Wednesday.

Equities have sold off broadly in recent months, 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 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.

Against that backdrop, investors have closely scrutinised economic data releases for clues about how much further rate-setters can hoist borrowing costs in the face of dwindling growth.

A report on Thursday offered fresh figures on the state of unemployment in the world’s largest economy, with first-time jobless claims coming in at 219,000 for the week ending October 1 — higher than the expected figure of 203,000 and up from 190,000 a week earlier.

That weaker than forecast picture came hot on the heels of a disappointing release on Tuesday on US job openings, which had eased concerns over interest rate rises and, in turn, fuelled a rally in Wall Street equities.

Current market pricing reflects expectations of the main Fed interest rate peaking at 4.5 per cent in March 2023, down from estimates 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.

The widely followed monthly jobs report from the labour department is due on Friday. The temperature of the US jobs market is seen as a key influence on Fed decision-making, with signs of loosening inspiring hopes that the central bank will act with less vigour to contain inflation.

US government bonds traded steadily on Thursday after days of sharp swings. Various Fed officials were due to speak on Thursday, with their remarks likely to be assessed closely for any pointers on the probability of a dovish pivot on policy.

UK debt came under renewed pressure, with the yield on the 10-year UK gilt adding 0.15 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.

In currencies, the dollar added 0.7 per cent against a basket of six peers after advancing more than 1 per cent in the previous session. The pound slid 0.8 per cent to hit $1.123 against the greenback, remaining around the levels it traded at before UK chancellor Kwasi Kwarteng unveiled his fiscal plans on September 23.