ASX set to open lower as retail woes unsettle Wall Street

“There’s often a gap between how people say they feel and how they spend their money, but the retail sales report shows people are beginning to cut back on big ticket items and discretionary categories like sporting goods,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Economists pointed to some brighter spots underneath the surface of the report on retail sales, including stronger-than-expected gains after ignoring auto fuel costs. A separate report released later in the morning also offered some encouraging data: The nation’s industrial production unexpectedly grew in April.

Treasury yields in the bond market rose following the reports. The yield on the 10-year Treasury climbed to 3.54 per cent from 3.51 per cent late Monday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for action by the Federal Reserve, rose to 4.07 per cent from 4.01 per cent.

The wide expectation on Wall Street is that the Fed will hold steady on interest rates in June. That would be the first time it hasn’t raised rates at a meeting in more than a year, as it fights to get inflation lower. A pause by the Fed could offer the economy and financial markets some breathing room.

Big Tech and other high-growth stocks tend to be some of the biggest beneficiaries of easier interest rates, and they helped limit Wall Street’s losses Tuesday.

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Amazon gained 2 per cent, and Google’s parent company, Alphabet, rallied 2.6 per cent. They were the two strongest forces pushing upward on the S&P 500 when nearly 90 per cent of the stocks in the index fell.

Also looming over Wall Street is the threat of the US government defaulting on its debt for the first time. That could occur as early as June 1 unless Congress agrees to raise the credit limit set for the nation’s borrowing.

Leaders from Congress met in the White House in the afternoon to discuss the debt limit. The stakes are tremendous, and economists say failure to allow the federal government to borrow more could mean tremendous pain for both the economy and financial markets.

Most of Wall Street expects Washington to reach a deal because failure to do so would be so traumatic. But Congress has a history of waiting until the 11th hour on such matters, which could raise worries on its own.

AP

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