Oil slump, slowing economy worries Wall St

Wall Street kicked off its short week mixed as oil prices fell on investor concerns that slowing economic growth could curb energy consumption.

Equity stocks in the US ended mixed over slowdown fears. Picture: Michael M Santiago/Getty Images

Two of the three major US stock indexes closed higher after the market staged a late-day rally, while oil prices fell on investor concerns that slowing economic growth could curb energy consumption.

The S&P 500 rose 0.2 per cent to 3831.39 to start the trading week after the US stock and bond markets closed for the Independence Day holiday.

The Dow Jones Industrial Average lost 0.4 per cent to close at 30,967.82. The tech-focused Nasdaq Composite Index shed earlier losses to gain 1.7 per cent to 11,322.24.

Equity prices declined for much of the morning before rallying back in afternoon trading.

The S&P and Dow Jones Industrial Average fell as low as 2.2 per cent and 2.4 per cent, respectively.

Brent crude, the international oil benchmark, slid 9.5 per cent to $US102.77 a barrel.

That is down from more than $US120 a barrel a month ago.

West Texas Intermediate, the US standard, fell more than 8 per cent $US99.50, its first time settling below $US100 since May.

Both commodities recorded their largest single-day declines since March.

Demand for fuel typically falls alongside declines in economic growth as consumers travel and purchase less.

“Oil prices are starting to reflect a much greater recession risk,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management.

Oil prices rose through late spring this year as the fallout from Russia’s invasion of Ukraine weighed on global supply.

Prices have been less volatile in recent months but remain above the roughly $US80 where they began the year.

US stocks tend to perform well in July, history shows, but this year investors say they are bracing for more pain ahead.

Traders are focused on stubborn inflation that has forced central banks around the world to aggressively tighten monetary policy. Economic data showing declines in metrics ranging from factory output to retail spending have exacerbated concerns that the US economy could tumble into a recession.

Gold prices fell 1.9 per cent, while the WSJ Dollar Index, which measures the greenback against a basket of 16 currencies, advanced about 1 per cent.

The euro, in contrast, slipped about 1.5 per cent, falling to a nearly 20-year low on concerns that the eurozone may be nearing an energy shock that could tip the bloc into recession.

The euro recently traded at $US1.03, putting it within striking distance of reaching parity.

Early Tuesday, reports that President Biden is expected to roll back some tariffs on Chinese imports initially provided stocks some reprieve, sending futures higher in pre-market trading on hopes that the changes could help rein in inflation. But as the session continued, selling pressure deepened.

“The market is desperate for good news,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

Even with the possibility of a rollback of tariffs on the horizon, he said, investors are asking how it might address mounting recession fears and inflation.

Elsewhere in markets, volatility was widespread. European gas prices rose to the highest level since March.

“The energy shock that the US is getting is significantly less than in Europe,” said Marco Pirondini, head of US equities at Amundi US, an asset-management company.

In the bond market, meanwhile, the yield on the benchmark 10-year US Treasury note fell to 2.81 per cent, from 2.91 per cent on Friday.

Investors this week are awaiting the Friday release of the June jobs report, which will shed insight on the trajectory of the US economy.

So far, the job market has shown little sign of faltering this year – offering one encouraging sign for the economy – even as other data in recent weeks have pointed to an economic slowdown.

Investors could be disappointed this month when major companies begin reporting second-quarter results.

“The first shoe that dropped was the Fed trying to get control over inflation,” said Cliff Corso, president and chief investment officer at Advisors Asset Management.

“The second shoe and the challenge for the second half is earnings, which haven’t really been adjusted down to coincide with a slowing [gross domestic product] forecast.”

Money managers and strategists also will be monitoring developments surrounding the Biden administration’s plans for tariffs and what impact it could have on inflation and the economy. On Tuesday, Chinese Vice Premier Liu He and US Treasury Secretary Janet Yellen spoke by videoconference about topics including the tariffs, marking the first time the two policy makers have spoken since October 2021.

Economists say removing Chinese tariffs isn’t likely to have a dramatic impact on inflation. And any rollback may not mark a fundamental change in the US-China relationship or the countries’ economic outlooks, some investors said.

“The size of the tariff reduction may not fundamentally change the U.S. inflation or China export outlooks,” said Frank Benzimra, head of Asia equity strategy at Société Générale. Investors might be focused on other tensions between the two countries, such as export and investment restrictions, he added.

Gains in the S&P’s communications services, consumer discretionary and information technology sectors pushed the broad-market index into the green for the day. The energy sector recorded the largest decline of any sector, down about 4 per cent.

Shares of Ford Motor fell 2.2 per cent after the company reported a 27 decrease in sales in June compared with the same month last year, but bucked the quarterly trend.

Overseas, the pan-continental Stoxx Europe 600 closed down 2.1 per cent, its largest single-day decline since June 16.

Shares of Uniper SE, one of Europe’s largest utility companies, fell about 9.5 per cent as it continues bailout talks with the German government amid strains from dwindling natural-gas supplies from Russia.

In Asia, Hong Kong’s Hang Seng index added 0.1 per cent. Japan’s Nikkei 225 gained 1 per cent.

With Rebecca Feng and Anna Hirtenstein

– The Wall Street Journal