US and European stocks fell for a fourth day in a row on Wednesday, ending the month at lows after hawkish messaging from the Federal Reserve abruptly ended an early summer rally.
The broad S&P 500 index fell 0.8 percent and is now down nearly 6 percent since Fed Chairman Jay Powell hard line speech at the Jackson Hole Economic Symposium last Friday.
Stock markets rebounded strongly in July and extended gains in the first half of August, helped by hedge funds unwinding bear trades that had benefited from market declines in the first half of the year.
However, Powell’s insistence that the US central bank would “keep it up until the job is done” and focus on controlling inflation even in the face of faltering economic growth renewed investor concerns about the effect of the highest interest rates. The S&P 500 fell 4.2% in August.
The tech-heavy Nasdaq Composite fell 0.6 percent on Wednesday, taking its loss since Powell’s speech to almost 7 percent.
Portfolio rebalancing can contribute to volatility on the last trading day of each month, and the Nasdaq oscillated between small gains and losses on Wednesday afternoon.
European stocks also closed lower, with the regional Stoxx 600 gauge down 1.1 percent after worse-than-expected eurozone inflation data for August. Figures released earlier in the session showed consumer price growth hit a record 9.1 percent this month, higher than economists’ expectations of 9 percent. The July reading was 8.9 percent.
That data further boosted German and UK government bond yields as investors continued to look for clues as to how far and fast the ECB and Bank of England would raise borrowing costs to rein in inflation, which it has been fueled by a mounting energy crisis.
Both debt markets closed one of the worst months in their history. The 10-year German Bund yield, seen as a gauge of borrowing costs in the eurozone, rose more than 0.7 percentage point in August to trade at 1.54 percent, reflecting its biggest monthly rise since 1990. The two-year Bund yield, which closely tracks interest rate expectations, posted its biggest jump in more than four decades, including rising 0.05 percentage point on Wednesday to 1.1 percent.
In the UK, short-dated gilt yields have added nearly 1.3 percentage points in August, their steepest rise since 1994, jumping 0.09 percentage point on Wednesday to 3.0 percent. Bond yields rise as their prices fall.
“Further increases in headline and core inflation in August, and [the] the likelihood that they will continue to rise will increase the pressure on the ECB to speed up the pace of adjustment. The balance of odds is shifting towards a 75 basis point rise next week,” wrote Jack Allen-Reynolds, senior Europe economist at Capital Economics, after the eurozone data was released.
the ECB increased borrowing costs in July for the first time in more than a decade by an unexpected large 0.5 percentage point to zero.
Some economists have warned that eurozone inflation will move above 10 percent in the fall and stay higher for longer due to rising gas prices. Futures contracts linked to the TTF, Europe’s wholesale gas price, fell as much as 9.9 percent to 239 euros a megawatt hour on Wednesday, before recouping their losses to end up 4.8 percent.
Russia halted gas flows to Europe through the critical Nord Stream 1 pipeline on Wednesday as Gazprom began three days of planned maintenance on the line.
The benchmark 10-year Treasury yield rose 0.06 percentage point to 3.17 percent.
Investors will closely scrutinize jobs data due out on Friday for evidence of a more active labor market in the world’s largest economy, a scenario that in turn may prompt the Fed to maintain its aggressive stance on the economy. monetary politics. Conversely, signs of cooling may spark a debate about the justification for raising rates in a recession.
Economists expect US employers to have added 300,000 new jobs in August, up from 528,000 last month.