ASX set to slip as Disney, banks weigh on Wall Street; $A drops

The Fed has been hiking rates at a furious pace to get the worst inflation in decades under control. Inflation has come down from its peak last year, but high rates have also sent prices for investments tumbling, helped cause turmoil for the banking industry and slowed the economy enough that many investors are preparing for a recession later this year.

A separate report on Thursday said more workers filed for unemployment benefits last week than expected. That’s bad news for workers and adds to concerns about a potential recession because the job market has been one of the main pillars propping up the economy.

But a cooling labor market would also carry a benefit for the Fed, which fears that a too-hot job market could put upward pressure on inflation.

Following the reports, Treasury yields fell on expectations for a less aggressive Fed. Traders are betting on a high probability that the Fed will have to cut interest rates later this year. Rate cuts act like steroids for financial markets but would likely happen only if the economy slides into recession and needs such oomph.

The Fed, meanwhile, has said it’s unsure of its next move but does not anticipate rate cuts this year if things go as expected.

“While it’s encouraging to see inflation moderating and indications of easing labor conditions, investors should expect volatility with ongoing banking concerns and a still unresolved debt ceiling debate,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.

Loading

For banks, the broader concern is that the industry’s troubles may cause a pullback in lending, which would hurt the economy. In the meantime, the US government is edging closer to a June 1 deadline where it could run out of cash unless Congress allows it to borrow more. Economists say a resulting default on the US government’s debt could be catastrophic for the economy.

The yield on the 10-year Treasury fell to 3.39 per cent from 3.44 per cent late Wednesday. It helps set rates for mortgages and other important loans. The two-year Treasury yield, which moves more on expectations for the Fed, slipped to 3.90 per cent from 3.91 per cent.

On the winning side of Wall Street was Robinhood Markets, which rallied 6.4 per cent after reporting a smaller loss and better revenue for the latest quarter than expected. It also launched a way for advanced traders to make some kinds of trades 24 hours a day, five days a week.

In markets abroad, stocks in London slipped 0.1 per cent after the Bank of England raised interest rates to their highest level since late 2008. The move was widely expected as inflation remains high in the UK.

Stock indexes were mixed elsewhere across Europe and Asia, with most making only modest moves.

AP

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.