Equity investors are adopting a cautious tone at the start of the week and as talk of a recession rises ahead of consumer and producer price reports due later this week.
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US stocks were down on Monday morning as investors await the key report on the economy and consumer prices this week.
Friday marked another dismal weekend on Wall Street, as a strong U.S. jobs report added to concerns that the Federal Reserve could view stronger-than-expected hiring data as evidence that the economy has not slowed enough to bring inflation under control.
That could mean even bigger rate hikes that could make a recession more likely.
A US consumer price report on Thursday will be one of the main factors for markets this week. Investors are also awaiting the latest updates on how companies are coping with higher prices and interest rate hikes.
On Friday, the S&P 500 fell 2.8%, ending with a 1.5% gain for the week, its first weekly gain in four weeks. The Dow Jones Industrial Average slipped 2.1%, while the Nasdaq fell 3.8%. The Russell 2000 Index fell 2.9% to 1,702.15.
The government’s report showing employers hired more workers last month than economists predicted could pave the way for the Fed to continue to aggressively raise interest rates, potentially triggering a recession if it is done too harshly.
Employers added 263,000 jobs last month, less than July’s hiring pace of 315,000, but still more than the 250,000 expected by economists.
Stocks have fallen more than 20% this year from record highs this year on worries about inflation, interest rates and the possibility of a recession.
By raising interest rates, the Fed hopes to starve inflation of the purchases needed to keep prices rising even further. The Fed has already seen some effects, with rising mortgage rates hurting the housing sector in particular. But if rate hikes go too far, it could push the economy into a recession.
Beyond higher interest rates, analysts believe the next hammer blow to equities could be a potential decline in corporate earnings. Businesses face high inflation and interest rates that eat away at their profits, while the economy slows.
Meanwhile, Asian stocks fell on Monday, with Chinese markets posting moderate losses after reopening from a week-long holiday on news of a fresh round of lockdowns due to rising COVID-19 cases. Markets were closed Monday in Tokyo, Taiwan and South Korea.
The Hang Seng in Hong Kong fell 2.8% to 17,249.33 while the Shanghai Composite Index lost 1.7% to 2,974.15. Bangkok’s SET was down 1% and India’s Sensex was down 0.2%.
Chinese cities were imposing more closures and travel restrictions after the number of new daily COVID-19 cases tripled during a holiday week, ahead of a big Communist Party meeting in Beijing next week.
China is one of the few places still resorting to harsh measures to prevent the spread of the disease. The long-ruling Communist Party is particularly worried as it tries to present a positive image of the nation ahead of a party congress every five years that begins on Sunday.
The strict “zero-COVID” approach has had an economic impact, especially on small businesses and temporary workers. Many in China hope the pandemic politics will ease after the meeting.