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Wall Street extends losses on resumed recession fears

Bear market

Wall Street fell for the second straight trading day as recession fears mounted amid the recent better-than-expected US economic data, which faded hopes for a sooner pivot Fed. CEOs from major banks, including David Solomon from Goldman Sachs and Jamie Dimon from JPMorgan, repeatedly warned of an economic recession ahead, while Morgan Stanley cut 2% of its employees on Tuesday. Again, risk-off sentiment prevailed in the broad markets, with the US dollar up against the other G-10 currencies for the second consecutive trading day, pressuring the gold and oil prices. But interestingly, the US bond yields were also lower, suggesting that investors may start piling into bonds for safety as Fed’s hike slowdown is still on the table.

In Asia, China’s reopening-fuelled rebound in Chinese shares also took a breather as it seems to be a long bumpy journey for the country to combat mounting infection cases and recover the economy at the same time. But notably, the US-listed Chinese shares all finished higher in contrast to a broad selloff on Wall Street as investment funds may continue to shift to Asia where monetary policy is more accommodative, and optimism towards China’s easing on Covid controls is still in play.  

  • S&P 500 stayed below 4,000, finishing under the year-long descending trendline, with 10 out of the 11 sectors closing in red. Energy, Technology, and Communication Services led to broad losses, all down more than 2%. The typical defensive sector, Utilities was the only sector that finished higher, up 0.6%. Notably, airline shares also outperformed due to positive outlooks for 2023. The International Air Transport Association said it expects airlines to return profitable in the new year.
  • Meta shares slumped 6% due to regulatory issues in the EU. The European Data Protection Board and the Irish data protection agency are likely to rule out fines amid Meta’s privacy law violation as the social platform is only allowed to run advertising based on personal data with suers’ consent.
  • Apple shares tumbled nearly 3% amid the recent negative news around the Covid-induced China production cut. Apple is reportedly to delay its plans of launching self-driving EV cars to 2026. The company has to scale back its plan for steering wheelless electric cars due to technological issues.
  • Crude oil sharply declined for the second straight trading day due to resumed recession fears and a jump in the US dollar. With ongoing uncertainties about China’s economic growth, US Fed’s monetary policy may stay hawkish, which continued to darken the global economic outlook provides.
  • Australian dollar was lower after the RBA raised the interest rate by another 25 pbs, which was the 8th consecutive rate hike time. The Reserve Bank indicated to continue to increase rates in the coming meetings but not a “pre-set” course. This was translated to be more dovish than hawkish. The third quarter GDP data is on watch today, with an estimate of 0.7% growth sequentially, a slowdown from 0.9% in the second quarter.
  • Chinese mainland stock markets rose for the second straight trading day as the local government’s stimulus measures continued to fuel the rally. China’s November trade balance data will be on close watch later today.
  • Asian equity markets are set to open lower. ASX futures were down 0.48%, Nikkei 225 futures fell 0.86% and Hang Seng Index futures fell 0.42%.

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