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Wall Street stocks advanced on Wednesday as soft US growth and labour market data added to signs that the world’s largest economy was cooling, boosting traders’ hopes that the Federal Reserve will not increase interest rates again this year.
The benchmark S&P 500 rose 0.4 per cent, led by technology and energy stocks, and the tech-focused Nasdaq Composite gained 0.5 per cent.
Treasury yields initially fell during morning trading to their lowest level in more than a fortnight after a revised reading for US gross domestic product showed that the economy expanded at an annualised rate of 2.1 per cent in the second quarter of this year, down from the initial estimate of 2.4 per cent.
Those figures followed a report from ADP showing that private payrolls rose by 177,000 jobs last month, the smallest gain in five months and less than the 195,000 forecast of economists polled by Refinitiv.
Quincy Krosby, chief global strategist at LPL Financial, said the ADP report confirmed “what consumers reported in the most recent consumer confidence report — that the job market has become more difficult in terms of available positions”. A survey from the Conference Board on Tuesday showed consumer confidence fell more than expected in August.
Economic data so far this week has mostly surprised to the downside. Investors will have more information to assess with Thursday’s release of personal consumption expenditures data — the Fed’s preferred inflation gauge — and non-farm payrolls data on Friday.
US Treasuries steadied in afternoon trading. The yield on two-year US Treasury was fractionally lower at almost 4.89 per cent, while that on the benchmark 10-year note was just below 4.12 per cent. Bond yields rise as prices fall.
The euro gained 0.4 per cent against the dollar after the preliminary inflation reading for Germany showed that consumer prices rose at an annual rate of 6.4 per cent in August, slightly higher than estimates.
The report pushed the interest rate-sensitive two-year German government bond yield as much as 0.1 percentage point higher to about 3.13 per cent.
“Today’s reading is a clear sign German inflation is remaining stubborn”, said Tom Hopkins, portfolio manager at BRI Wealth Management. “Investors are now betting that the European Central Bank is increasingly likely to raise interest rates next month.”
Investors are pricing in a roughly 50 per cent probability of the ECB raising interest rates at its next policy meeting in September, according to data compiled by Refinitiv and based on interest rate derivatives prices.
The pan-European Stoxx Europe 600 closed 0.2 per cent lower, having oscillated between minor gains and losses throughout the day. France’s Cac 40 fell 0.1 per cent and Germany’s Dax gave up 0.2 per cent.
Adding to the trend, the rate of Spain’s annual price growth accelerated to 2.4 per cent in August, up from 2.1 per cent the previous month, according to data on Wednesday.
But in Australia, fresh inflation data showed that the annual pace of consumer price increases slowed to 4.9 per cent in July, down from 5.4 per cent the previous month, landing below the 5.2 per cent market forecast.
The markets are pricing in that the Reserve Bank of Australia will keep rates steady for the third consecutive month in September.
The S&P/ASX 200 index ended the day 1.2 per cent higher. China’s benchmark CSI 300 index and Hong Kong’s Hang Seng index were both flat.
