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US stocks move higher as investors weigh slowdown risks

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US stocks rose on Thursday, but the move did little to recoup this week’s decline on worries about the affect of sustained high interest rates on the American economy.

Wall Street’s benchmark S&P 500 gained 0.9 per cent and the tech-heavy Nasdaq Composite rallied 1.4 per cent in afternoon trading in New York. In Europe, the regional Stoxx 600 and London’s FTSE 100 both fell 0.2 per cent.

The S&P 500 had fallen for the previous five consecutive sessions as stronger than expected jobs and services sector data have chipped away at investors’ conviction about the direction of the Federal Reserve’s interest rate rises.

Fed chair Jay Powell last week suggested that rates could rise 0.5 percentage points in December, potentially ending a run of four 0.75 percentage point increases, but also warned that the US central bank has a long way to go in its fight against inflation.

Futures markets indicate that an overwhelming majority of investors have already priced in such a move, but the mood on Wall Street remains skittish ahead of November’s inflation report and the Fed’s final meeting of the year next week.

“Just last week the market was coming around to the possibility that the Fed might actually pull off the fabled soft landing, but recently the market is returning to the belief that a recession is likely,” said Mike Zigmont, head of trading and research at Harvest Volatility Management.

“I think this back-and-forth thinking is simply a product of uncertainty and the year-long bear market,” Zigmont added. “Investors are so beat up that they are less comfortable holding a view without clear evidence.”

The Treasury market sold off on Thursday and continues to flash warning signs of a slowdown in economic growth, with the gap between short- and long-term US borrowing costs on Wednesday reaching its widest point since 1981. The two-year Treasury yield added 0.06 percentage points to reach 4.32 per cent, while the 10-year yield rose by 0.08 percentage points to 3.49 per cent. Yields rise as prices fall.

Hong Kong stocks reversed some of their steep falls from the previous session as the territory followed mainland China in easing some Covid-19 restrictions.

The Hang Seng index gained 3.4 per cent, after a fall of 3.2 per cent in the previous session. The gains were broad, with consumer-focused stocks, healthcare companies and tech shares leading the way. Real estate and financial groups also gained while “haven” shares, such as utilities, lagged.

Sixty stocks rose and 12 declined, ensuring the index remains on track for its biggest quarterly rise since the final three months of 2020. Mainland China stocks were more muted, however, with the CSI 300 index of Shanghai- and Shenzhen-listed shares flat.

Investors were encouraged by a report of further easing of Hong Kong’s Covid curbs, which was confirmed when a health official told a briefing that isolation periods for victims and their close contacts would be shortened from seven days to five. Discussions on ending outdoor mask-wearing as a requirement were also reported, but the policy will officially remain in place.

“On the one hand you’ve had this almost euphoric reaction to the easing of Covid restrictions in China, and more support for the property sector,” said Mitul Kotecha, head of emerging markets strategy at TD Securities. “But there are still constraints here over the efficacy of vaccines, over ICU capacity, on the number of unvaccinated, which suggest we could have slower progress than markets are predicting.”

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