US equities started the second half of the year on a subdued note as investors struggled to see the end of inflation and interest rate pressures that pushed Wall Street to its worst first-half drop since 1970.
The S&P 500, which fell by a fifth in the first six months of this year, was little changed early on Friday after General Motors announced a 15 per cent year on year decline in quarterly sales.
The Nasdaq Composite, which has a heavy weighting of large technology stocks that have suffered this year from tighter financing conditions, rose 0.2 per cent in early trades.
Investors have rushed out of risky assets after coronavirus-related supply chain glitches and Russia’s invasion of Ukraine caused inflation to surge, pushing central banks to withdraw monetary policies that had encouraged economic growth and borrowing.
“Recession risks have intensified and are sweeping across the marketplace and weighing on sentiment,” said Candice Bangsund, portfolio manager at Fiera Capital.
The drop in sales at GM was “an indication of the macro slowdown we’ve seen so far”, said Aneeka Gupta, research director at WisdomTree. The carmaker cited disrupted semiconductor supply chains for holding 95,000 vehicles back from forecourts.
The US Federal Reserve lifted its benchmark interest rate by an extra large 0.75 percentage points last month to a range of 1.5 to 1.75 per cent and markets expect a further rise to 3.3 per cent by next March, in a tightening cycle that could tame inflation while raising companies’ borrowing costs. The prospect of more rises has already dented consumer confidence.
Fed chair Jay Powell admitted last week that a US economic downturn was “certainly a possibility” and avoiding it depended largely on factors outside the central bank’s control.
Europe’s regional Stoxx 600 rose 0.1 per cent after data on Friday showed the annual rate of eurozone inflation climbed to 8.6 per cent last month, up from 8.1 per cent in May. Shares in utilities, which are seen as having inbuilt defences from rising consumer prices, rose strongly.
“This sends an important message about what the European Central Bank should be doing,” said Florien Ielpo, head of macro at Lombard Odier Investment Managers. “They are likely to get tougher and tougher.”
Futures markets expect the ECB to end its long-held policy of negative interest rates by September and raise its main deposit rate to about 0.75 per cent by the end of the year. The Stoxx has lost about 16 per cent since the end of 2021.
The yield on the 10-year US Treasury note, which underpins global loan pricing, fell 0.12 percentage points to 2.86 per cent as traders turned to the bonds of the world’s largest economy as a haven asset.
The dollar index, which measures the reserve currency against six others, rose 0.7 per cent.
Brent crude oil, which has been insulated from recession fears by predictions of a supply deficit as western powers move to exclude Russia from international trade, rose 1.8 per cent to $110.95 a barrel.