GLOBAL MARKETS-Stocks fall as corporate results fuel recession fears

GLOBAL MARKETS-Stocks fall as corporate results fuel recession fears

GLOBAL MARKETS-Stocks fall as corporate results fuel recession fears

(Adds closing market prices)

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Battle over whether recession prompts Fed rate cut simmers

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Corporate outlook, results show slowing economy

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Performance curve “reversal” flash recession in front

By Herbert Lass

NEW YORK, Jan 25 (Reuters) – Global stock markets fell on Wednesday as poor corporate results fueled fears of a recession, as did the continued reversal of short- and long-term bond yields – a harbinger of an economic downturn.

But the main indexes on Wall Street pared losses, suggesting many believe a recession, combined with rising unemployment, will lead the Federal Reserve to back off aggressive monetary tightening and soon cut interest rates.

Short-term bond yields have been inverted, or higher than longer-dated government debt, for some time. The yield curve for the three-month note and 10-year note edged lower on Wednesday but remained deeply inverted at -123.5 basis points.

“Every recession has been preceded by some type of yield curve inversion,” said Joseph LaVorgna, chief U.S. economist at SMBC Nikko Securities in New York.

But with the Fed’s overnight lending rate at 4.25%-4.5%, it is “restrictive” and slowing growth, possibly causing large job losses in the next month or two that will lead the central bank of US to cut interest rates by the middle of the year. he said.

“I could be right about the economy and the labor market, but the Fed can continue to say we’re going to drive the economy lower until there’s no fear that inflation will pick up.”

Corporate America also signaled trouble ahead. Boeing’s negative results on Wednesday amid ongoing supply chain constraints fueled concerns about slower growth, while Microsoft Corp warned its customers to be cautious about spending in an uncertain economy on a poor outlook late on Tuesday.

Futures are pricing in a 94.7% chance of a 25bps increase when February policymakers conclude a two-day meeting on February 1.

The 10-year Treasury yield fell 2.2 basis points to 3.445%, well below the Fed’s forecast that its target rate will remain above 5% next year.

Two out of three Americans say they worry more about paying bills than saving for their financial future, said Johan Grahn, head of ETFs at Allianz Investment Management in Minneapolis, citing a survey conducted by his firm.

While the U.S. central bank will make some changes, “they are not significant enough to scare the Fed away from its stated course orders,” Grahn said. “The enemy is inflation, the catalyst is the labor market and that’s the bottom line.”

Wall Street closed little changed. The Dow Jones Industrial Average rose 0.03%, the S&P 500 fell 0.02% and the Nasdaq Composite fell 0.18% after losses of more than 2% earlier.

Trade in European shares was lackluster as signs of an improving economic outlook in the eurozone fueled concerns about further rate hikes.

The broad pan-European STOXX 600 index lost 0.29 percent and MSCI’s index of global stock performance closed up 0.05 percent to hit a fresh five-month closing high after trading much lower for most of the day.

Markets have been hit by the fastest tightening of monetary policy since the 1980s.

The Bank of Canada indicated it would likely hold off on further hikes after raising its key interest rate to 4.5% on Wednesday.

Earlier, the Australian dollar hit a five-month high as rising inflation data strengthened the case for another rate hike by the Reserve Bank of Australia (RBA) next month.

The Canadian dollar fell 0.11% against the greenback to 1.34 per dollar after the central bank outlook.

The Australian dollar jumped to $0.7123 after the latest inflation data. Australia’s currency has gained 1.6% this week and is poised for its biggest weekly gain in more than two months.

The euro rose 0.26% to $1.0913.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan hit a seven-month high. Trading volume fell as markets in China and Taiwan were still closed for the Lunar New Year holiday.

Data showing German business sentiment improved in January did little to push the single currency higher for now.

Germany’s Ifo institute said its business climate index rose to 90.2, in line with consensus, according to a Reuters poll of analysts, and from 88.6 in December.

Oil prices were largely unchanged after government data showed a smaller-than-expected increase in U.S. crude inventories, countering weak economic data on Tuesday.

Brent crude futures settled at $86.12 a barrel, down a cent, while U.S. West Texas Intermediate (WTI) crude futures settled at $80.15 a barrel, down two cents. cents.

Gold reversed course to rise as the dollar weakened and investors closely watched a series of upcoming U.S. economic data that could influence the Fed’s policy meeting next week.

U.S. gold futures rose 0.4 percent to $1,942.60 an ounce.

(Editing by Bernadette Baum, William Maclean and Deepa Babington)

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