Markets flat as strong US econ invites higher interest rates
By ELAINE KURTENBACH and MATT OTT
AP Business Writers
U.S. futures are flat Tuesday, a day after markets tumbled on surprisingly strong economic data that highlighted the challenges the Federal Reserve faces in battling inflation.
Futures for the S&P 500 and Dow Jones industrials shifted between small gains and losses before the bell.
With growing concern about a coming recession, Fitch Ratings revised its forecasts for world economic growth downward on Tuesday to reflect the Fed’s and other central banks’ interest rate hikes.
The ratings agency’s Global Economic Outlook report estimated global growth at 1.4% in 2023, revised down from 1.7% in its September forecast. It put U.S. growth in 2023 at 0.2%, down from 0.5%, as the pace of monetary policy tightening increases.
China’s growth forecast was cut to a 4.1% annual pace from 4.5%.
Markets have been lifted by expectations China will press ahead with easing its stringent pandemic restrictions, relieving pressures on trade, manufacturing and consumer spending.
In Asian trading, Hong Kong’s Hang Seng fell 0.4% to 19,441.18 and the Kospi in South Korea fell 1.1% to 2,393.16. The Shanghai Composite index was flat at 3,212.53.
Tokyo’s Nikkei 225 index closed 0.2% higher at 27,885.87.
Shares fell in Bangkok and Taiwan.
Investors have been hoping the Fed might slow the pace of its interest rate hikes aimed at curbing stubbornly high inflation.
The services sector, which makes up the biggest part of the U.S. economy, showed surprising growth in November, the Institute for Supply Management reported Monday. Business orders at U.S. factories and orders for durable goods in October also rose more than expected.
That news is positive for the broader economy, but it complicates the Fed’s fight against inflation because it likely means the central bank will have to keep raising interest rates to bring down price pressures.
“The risks that the Fed might need to do more remain elevated and that is why this economy needs to head to a recession,” wrote market analyst Edward Moya of Oanda.
The Fed is meeting next week and is expected to raise interest rates by a half-percentage point, which would mark an easing of sorts from a steady stream of three-quarters of a percentage point rate increases. It has raised its benchmark rate six times since March, driving it to a range of 3.75% to 4%, the highest in 15 years. Wall Street expects the benchmark rate to reach a peak range of 5% to 5.25% by the middle of 2023.
The aim is to cool growth without slamming on the brakes and causing a recession that would cascade through the global economy, slowing trade and consumer spending.
Germany’s DAX and the CAC 40 in Paris each fell 0.2% by midday, while Britain’s FTSE 100 lost 0.4%.
Major airline stocks got a nudge after an airline trade group forecast the industry would return to annual profitability in 2023 for the first time since the pandemic broke.
The International Air Transport Association said Tuesday that airlines are expected to post a net profit of $4.7 billion next year. It would be the first annual profit since 2019’s $26.4 billion.
This year, airlines’ net losses are expected to be $6.9 billion. That follows losses of $42 billion in 2021 and $138 billion in 2020.
On Monday, the S&P 500 fell 1.8%, while the Dow Jones Industrial Average lost 1.4%. The tech-heavy Nasdaq skidded 1.9% and the Russell 2000 index tumbled 2.8%.
A weekly update on U.S. unemployment claims is due Thursday and November’s monthly report on producer prices will be released on Friday.
In other trading Tuesday, U.S. benchmark crude oil lost $1.03 to $75.90 per barrel in electronic trading on the New York Mercantile Exchange. It lost $3.05 to $76.93 per barrel on Monday.
Brent crude, the pricing basis for international trading, shed $1.08 to $81.60 per barrel.
The U.S. dollar fell to 136.14 Japanese yen from 136.71 yen late Monday. The euro climbed to $1.0517 from $1.0491.
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Kurtenbach reported from Bangkok; Ott reported from Washington.
