- Governor Christopher Waller suggested that the Fed might not need to hike rates soon.
- The surge in oil prices might hinder the Fed’s efforts to rein in inflation.
- China’s services sector expansion slowed to its weakest pace in eight months.
US equities ended Tuesday in the red. The Dow led the decline as Treasury yields climbed, along with oil prices as investors evaluated the Federal Reserve’s interest rate trajectory.
Although all three primary US stock indices had seen gains the previous week, driven by hopes of a more lenient Fed stance, that optimism faded by Monday.
US Treasury yields increased, buoyed by robust economic data. Moreover, Fed Governor Christopher Waller suggested that the central bank might not need to adjust rates in the near future.
According to Paul Nolte from Murphy & Sylvest Wealth Management in Elmhurst, Illinois, rising interest rates were making it challenging for stocks to make progress, as they provided a compelling alternative to equities.
Nolte also pointed out that the recent surge in oil prices was hindering the Fed’s efforts to rein in inflation and reduce it to 2%. “Many anticipated the Fed stepping aside or cutting rates, but that may not be the case,” Nolte remarked.
According to the CME Group’s FedWatch tool, traders believed there was a 93% likelihood that the Fed would maintain rates at its September policy meeting and a roughly 54% chance of a pause in November.
Sam Stovall, chief investment strategist at CFRA Research, emphasized that the Fed would need to consider upcoming data, including August’s inflation figures, before making a rate decision later in the month.
China services PMI (Source: S&P Global, National Bureau of Statistics)
Meanwhile, China’s services sector expansion slowed to its weakest pace in eight months in August, as per a private sector survey released earlier. This raised global growth concerns, hurting equities.
On a positive note, Goldman Sachs reduced its estimate of the likelihood of a US recession within the next year from 20% to 15%.
Elsewhere, European equities dipped on Tuesday due to disappointing services sector data from China and the Eurozone, raising concerns about a global economic slowdown. Energy stocks mitigated some of the losses.
Sectors with ties to China, such as luxury and construction & materials, experienced significant declines, falling 1.2% and 1.0%, respectively. Additionally, Eurozone business activity declined more rapidly than initially anticipated last month, with the services industry contracting, suggesting the bloc might be heading toward a recession.
