US stocks fall amid mixed messages on consumer and manufacturing data

Nov 16th, 2022

November 17, 2022

Target leads sell-off among retailers after giving gloomy forecast for holiday seasonarget leads sell-off among retailers after giving gloomy forecast for holiday season

US stocks fell on Wednesday as investors digested hotter than expected retail sales data and a slowdown in manufacturing output growth in the world’s biggest economy.

Wall Street’s benchmark S&P 500 fell 0.8 per cent, while the tech-heavy Nasdaq Composite gave up 1.5 per cent. The dollar index, which tracks the currency against six of its peers, fell 0.1 per cent and has fallen 4.7 per cent in November.

Data out on Wednesday showed US retail sales climbed more than expected in October, rising 1.3 per cent, having leveled off in September. Economists polled by Reuters had forecast a 1 per cent rise.

The sales figures came after department store Target warned of weakening consumer demand and announced a multibillion-dollar cost-cutting plan, with its shares plunging 13 per cent on Wednesday.

“Dwindling savings and increased use of credit are keeping the consumer propped up right now,” said Shelby McFaddin, analyst at Motley Fool Asset Management. Total household debt increased 2.2 per cent to $16.5tn in the third quarter, data from the Federal Reserve Bank of New York show.

Another batch of data out on Wednesday showed US manufacturing output rose 0.1 per cent in October, slightly less than the 0.2 per cent increase predicted by economists. US industrial production, which includes mining and utility output on top of manufacturing output, fell 0.1 per cent. Economists predicted a rise of 0.2 per cent.

The figures suggested US manufacturing was “slowly succumbing to the global malaise”, said Paul Ashworth, chief North America economist at Capital Economics.

In government bond markets, the yield on the two-year Treasury note, which is particularly sensitive to changes in interest rate expectations, was flat at 4.37 per cent. The yield on the 10-year note, seen as a proxy for global borrowing costs, slid 0.11 percentage points to 3.69 per cent as the price of the benchmark debt instrument rose.

In turn, the gap between the two yields reached as much as minus 0.68 percentage points on Wednesday, with the so-called Treasury yield curve inversion — a closely watched recession signal — sitting at its widest level since 1982. The deeper inversion on Wednesday suggested that investors were betting that Federal Reserve policy could further crimp US economic growth.

US stocks climbed in the previous session, consolidating strong gains late last week, after a report on Tuesday showed factory gate prices rose 0.2 per cent in October from September, less than the 0.4 per cent rise expected by economists polled by Bloomberg. The data spurred hopes that moderating inflation could prompt the Fed to soon slow the pace of interest rate increases.

Across the Atlantic, the regional Stoxx Europe 600 fell 1 per cent. London’s FTSE lost 0.3 per cent after fresh data showed UK inflation accelerated to 11.1 per cent last month, up from 10.1 per cent in September. Core inflation, which excludes volatile food and energy prices, held steady at 6.5 per cent in October, the same rate as in September.

“It looks like UK headline inflation is at its peak,” said James Smith, economist at ING.

“The fact that the government is effectively fixing electricity [and] gas unit prices below wholesale costs until next April means this is probably as high as it will get, though admittedly we expect headline rates to stay in double-digits until at least February next year,” Smith added.

Asian equities fell on Wednesday after making strong gains earlier this week, as geopolitical tensions in Europe and rising Covid-19 cases in China hit markets.

Hong Kong’s Hang Seng index was down 0.5 per cent, China’s CSI 300 slipped 0.8 per cent and South Korea’s Kospi fell 0.1 per cent. Japan’s Topix was little changed.