US stocks steady after worries over Fed interest rates spur sell-off

US stocks endured a choppy session of trading, capping a week in which equities have been dragged down by the effects of rising oil prices and growing expectations that interest rates will stay higher for longer.

Wall Street’s benchmark S&P 500 closed 0.2 per cent lower on Friday, and shed 2.9 per cent over the week. The tech-heavy Nasdaq Composite dropped 0.1 per cent on Friday, taking its weekly loss to 3.6 per cent. Both indices have fallen for three consecutive weeks.

Stocks sold off on Wednesday and Thursday, and yields on Treasuries reached their highest levels since before the financial crisis, spurred by hawkish monetary policy guidance from the Federal Reserve, which signalled its intention to raise interest rates further this year, and limit cuts in 2024.

Susan Collins, president of the Fed’s Boston branch, on Friday reiterated that interest rates will stay higher for longer, while San Francisco Fed president Mary Daly said inflation is unlikely to fall to the central bank’s 2 per cent target in 2024.

Yields on longer-dated US Treasuries retreated on Friday from 16-year highs this week. The yield on the benchmark 10-year Treasury, which on Thursday reached its highest level since November 2007, fell 0.04 percentage points to 4.44 per cent.

The yield on the policy-sensitive two-year Treasury was down 0.04 percentage points at 5.11 per cent. Yields move inversely to price.

Business surveys from the US and Europe signalled resilience in those economies amid restrictive monetary policies.

The S&P Global flash composite purchasing managers’ index, a measure of manufacturing and services sector activity in the US, came in at 50.1 in September. That was down slightly from the previous month, but is hovering around the threshold of 50, readings below which indicate the sector is contracting.

The equivalent PMI for the eurozone came in at 47.1 in September, above analysts’ forecasts of 46.5.

“The essential message from the macro data remains that of an improving situation, in sharp contrast to what it was a few months ago,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers. “The enigma investors need to decipher is whether this is good or bad news for risky assets.”

Europe’s region-wide Stoxx Europe 600 fell 0.3 per cent, ending the week 1.3 per cent lower. The CAC 40 in Paris declined 0.4 per cent on Friday and the Dax in Frankfurt gave up 0.1 per cent.

Adding to the pressure on central banks across the world, supply cuts from leading exporters pushed oil prices up 30 per cent since June, threatening to hamper global efforts to bring inflation back to the 2 per cent target.

Brent crude, the international benchmark, settled fractionally lower at $93.27 a barrel, even though Russia barred the export of diesel and petrol in its latest move to lift prices. West Texas Intermediate, the US marker, added 0.5 per cent to $90.03.

The dollar advanced 0.2 per cent against a basket of six peer currencies to a six-month high.

Among those in the dollar basket is the Japanese yen, which weakened 0.5 per cent to trade at ¥148.38 to the dollar after the Bank of Japan announced on Friday its widely expected decision to stick with an ultra-low interest rate policy.

The policy comes even as Japan’s consumer price growth exceeded the central bank’s 2 per cent target for the 17th consecutive month, with the “core” figure rising 3.1 per cent in August.

Japan’s benchmark Topix index declined 0.3 per cent. Elsewhere in Asia, China’s CSI 300 advanced 1.8 per cent and Hong Kong’s Hang Seng gained 2.3 per cent.