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Asian equities witnessed a dip on Wednesday due to concerns over the worldwide economic situation. This was despite some earnings reports that exceeded expectations. Tokyo, Sydney, Seoul, and Shanghai were among the cities that faced a decline, while Hong Kong saw gains in early trading. Anderson Alves, who works for Active Trades, noted that the “worsening trade tensions between the U.S. and China continues to weigh on market sentiment.” Reports suggest that the U.S. has asked South Korean firms not to backfill chip orders to China if U.S.-listed firms are barred access to China, adding to the uncertainty.
The S&P 500 fell 1.6% on Tuesday to 4,071.63, breaking out of a weekslong lull. The Dow Jones Industrial Average dropped 1% to 33,530.83, while the Nasdaq composite sank 2% to 11,799.16. The majority of companies so far this reporting season have exceeded expectations, but the bar was set considerably low. Analysts are forecasting the worst drop in S&P 500 earnings since the spring of 2020, when the pandemic froze the global economy. That’s why Wall Street is focused just as much, if not more, on what companies say about their future prospects as they do about their past three months.
The economy is under stress from high interest rates meant to control inflation, which can stifle inflation, but only by putting the brakes on the entire economy and hurting investment prices. With so much uncertainty about whether inflation can return to the Federal Reserve’s target without causing a recession, “we remain skeptical that markets are out of the woods,” Barclays strategists led by Stefano Pascale said in a report. They also pointed to “the risk of something breaking” in the financial system because of high rates.
A report on Tuesday showed that consumer confidence fell more sharply in April than expected, down to its lowest level since July. That’s a discouraging signal when consumer spending makes up the biggest part of the U.S. economy. The Federal Reserve meets next week, and much of Wall Street expects it to raise interest rates at least one more time before pausing.
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In the bond market, the yield on the 10-year Treasury fell to 3.39% from 3.50% late Monday, which helps set rates for mortgages and other important loans. In energy trading, benchmark U.S. crude added 41 cents to $77.48 a barrel, while Brent crude, the international standard, rose 31 cents to $81.08 a barrel.