Stock markets fell in cautious trading Tuesday as investors worried that headwinds are gathering for the US economy, outweighing hopes that recent weak data would prompt the Federal Reserve to start cutting interest rates.
The uncertainty also pushed down oil prices and global energy firms, as the prospect of slackening demand worldwide came just as the OPEC+ alliance said it would roll back production cuts starting in October.
Investors have shifted nervously in recent weeks on concerns the Fed will not cut interest rates until 2025 as inflation remains stubbornly above target and decision-makers warned against moving too early, insisting on seeing more evidence that price rises are under control.
But fears of persistent economic weakness have moved to the fore, after the Institute for Supply Management (ISM) said Monday that its manufacturing index showed that US activity contracted for a second successive month in May.
The figures indicated that businesses were struggling with elevated interest rates and weak consumer spending, among other things.
“The manufacturing ISM data reaffirmed several prevailing economic trends: decelerating inflation, slowing growth, and a tight labour market,” said Gary Pzegeo of CIBC Private Wealth US.
“We should see higher odds of a rate cut later this year priced into interest rate futures.”
BMO Capital Markets’ Ian Lyngen and Vail Hartman said “investors are on guard for indications that the downside trajectory is accelerating”.
Attention is now focussed on Friday’s release of US non-farm payroll figures for a fresh snapshot of the labour market in the world’s biggest economy.
Earlier Tuesday, stock indexes in Asia ended broadly lower, led by a nearly six percent slump in India as it appeared India’s Prime Minister Narendra Modi would not win as big an election victory as expected.
The Sensex had jumped more than three percent Monday on hopes a big majority would help Modi push through economy-boosting measures.
But while Modi’s Bharatiya Janata Party looked set to win India’s national elections, results so far suggest it would not be the landslide initially expected.
– Key figures around 1545 GMT –
New York – Dow Jones: DOWN 0.2 at 38,514.29 points
New York – S&P 500: DOWN 0.4 percent at 5,263.70
New York – Nasdaq: DOWN 0.4 percent at 16,767.89
London – FTSE 100: DOWN 0.4 percent at 8,2333.46 (close)
Paris – CAC 40: DOWN 0.8 percent at 7,937.90 (close)
Frankfurt – DAX: DOWN 1.1 percent at 18,405.64 (close)
EURO STOXX 50: DOWN 1.0 percent at 4,953.37 (close)
Tokyo – Nikkei 225: DOWN 0.2 percent at 38,837.46 (close)
Hong Kong – Hang Seng Index: UP 0.2 percent at 18,444.11 (close)
Shanghai – Composite: UP 0.4 percent at 3,091.20 (close)
Euro/dollar: DOWN at $1.0881 from $1.0903
Euro/pound: DOWN at 85.13 pence from 85.14 pence
Pound/dollar: DOWN at $1.2782 from $1.2802
Dollar/yen: DOWN at 154.81 yen from 156.21 yen on Monday
West Texas Intermediate: DOWN 1.2 percent at $73.30 per barrel
Brent North Sea Crude: DOWN 1.1 percent at $77.48 per barrel
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