Australian Economy

Banks earnings, recession fears to weigh on Australian stocks

Several big technology companies rose and helped offset some of the losses elsewhere in the market. Apple rose 2 per cent.

The yield on the 10-year Treasury, which affects mortgage rates, rose to 2.96 per cent from 2.90 per cent late Thursday. It remains lower than the two-year Treasury, which is at 3.12 per cent. That’s a relatively rare occurrence, and some investors see it as an ominous signal of a potential recession.

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The Fed has already raised rates three times this year and traders are increasingly expecting a monster rate hike of a full percentage point at the central bank’s next meeting in two weeks. Traders are betting on a 83 per cent chance of a full-point hike, up from zero a month ago, according to CME Group.

Christopher Waller, a member of the Federal Reserve’s Board of Governors, said Thursday that he would be open to supporting such a move if upcoming economic data points to robust consumer spending.

“We went into this week feeling that the Fed would make a move significant enough to show it had more control” in fighting inflation, said Greg Bassuk, CEO at AXS Investments. “A meaty Fed rate hike alone does not rule out an opportunity for a soft landing, but the window is shrinking.”

Investors have grown increasingly worried as retail sales and other data point to an economy already slowing. That could make it more difficult for the Fed to make a so-called “soft landing,” where it raises rates just enough cool inflation without causing a recession.

Concerns about the Fed’s rate hikes have prompted Bank of America to forecast a mild recession hitting the economy in the second half of the year and more pain for traders. The benchmark S&P 500 index has already slumped into a bear market, down 20 per cent from its most recent high in January, and likely hasn’t hit bottom yet, according to the bank.

Investors will get a clearer picture in the coming weeks about how badly inflation is hurting companies. Several more banks are on deck to report earnings Friday, including Citigroup and Wells Fargo, along with insurer UnitedHealth Group.

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