- The Federal Reserve may need to maintain high interest rates due to economic data.
- US job openings increased in August, suggesting a tight labor market.
- European shares declined to their lowest levels in six months.
US equities fell on Tuesday, reflecting concerns that the Federal Reserve may need to maintain high interest rates due to economic data. The S&P 500 index dipped to the lowest level since June 1.
Meanwhile, the Dow went into negative territory for the year, ending at its lowest point since May 31. The Nasdaq also closed at its lowest level since May 31.
US job openings (Source: Bureau of Labor Statistics)
US job openings unexpectedly increased in August, particularly in the professional and business services sector, suggesting a tight labor market. This could lead the Fed to raise interest rates next month.
This increase in job openings in August broke a three-month trend of declining job openings. Moreover, employers held onto their workers in August.
Moreover, the rise in job openings in August raised concerns about a tight labor market ahead of Friday’s key US monthly jobs report.
Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey, noted that investors had originally anticipated the Fed would cut short-term rates, leading to a favorable interest rate environment. However, the current scenario indicates the likelihood of higher rates for an extended period. Higher borrowing costs negatively affect businesses and consumers.
Atlanta Fed President Raphael Bostic mentioned there is no immediate urgency for the central bank to raise its policy rate. Still, it may be quite some time before rate cuts become appropriate. On the other hand, Cleveland Fed President Loretta Mester expressed openness to raising rates again, potentially at the next bank meeting.
Investors are preparing for US companies to report their latest quarterly reports in the coming weeks, hoping these results might bring positive news to the market.
Elsewhere, European equities declined to their lowest levels in six months due to rate-sensitive utilities and miners. This decline resulted from expectations that US interest rates would remain high for an extended period, boosting Treasury yields and the dollar. The pan-European STOXX 600 index fell by 1.1%, reaching its lowest point since March 24.
Steve Sosnick, the chief strategist at Interactive Brokers, attributed the significant downturn, which began around midday, primarily to US futures. He explained that this downturn intensified when US bond traders initiated a sell-off, subsequently affecting European equities.