US stocks rise after weak economic data

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Wall Street stocks gained on Wednesday as soft GDP and labour market data from the US added to signs that the world’s largest economy was cooling, making further interest rate increases less likely.

Wall Street’s benchmark S&P 500 rose 0.3 per cent and the tech-focused Nasdaq Composite gained 0.4 per cent as investors took heart in fresh data pointing to a slowing US economy.

The gains came after a revised reading for US gross domestic product showed that the economy expanded 2.1 per cent in the second quarter of this year, down from the initial estimate of 2.4 per cent.

At the same time, a separate report from ADP National Employment showed on Wednesday that private payrolls rose by 177,000 jobs last month, less than the 195,000 forecast of economists polled by Reuters.

The latest releases added to a pool of data that has this week illustrated the pressure that high interest rates put on the US economy, increasing chances that the central bank could soon pause its tightening campaign. 

A day earlier, soft US labour market data spurred a rally on Wall Street, as it showed the number of new job openings falling to their lowest level in more than two years.

In government debt markets, yields on two-year US Treasuries lost 0.03 percentage points to 4.86 per cent, while yields on the benchmark 10-year notes fell 0.02 percentage points to 4.1 per cent. Bond yields rise as prices fall.

Meanwhile, the euro gained 0.5 per cent against the dollar after the preliminary inflation reading for Germany showed that harmonised consumer prices rose at an annual rate of 6.4 per cent in August, outpacing analysts’ 6.3 per cent forecast.

The report pushed the interest rate-sensitive two-year German government bond yield 0.02 percentage points higher to 3.05 per cent. Bond yields rise when prices fall.

“Today’s reading is a clear sign German inflation is remaining stubborn”, said Tom Hopkins, portfolio manager at BRI Wealth Management. “Investors are now betting that the European Central Bank is increasingly likely to raise interest rates next month.”

Investors are pricing in a roughly 50 per cent probability of the European Central Bank raising interest rates at its next policy meeting in September, according to data compiled by Refinitiv and based on interest rate derivatives prices.

The pan-European Stoxx Europe 600 index edged 0.1 per cent lower by the close, having oscillated between minor gains and losses throughout the day. France’s Cac 40 fell 0.1 per cent and Germany’s Dax gave up 0.2 per cent.

Adding to the trend, the rate of Spain’s annual price growth accelerated to 2.4 per cent in August, up from 2.1 per cent the previous month, according to data on Wednesday.

But in Australia, fresh inflation data showed that the annual pace of consumer price increases slowed to 4.9 per cent in July, down from 5.4 per cent the previous month, landing below the 5.2 per cent market forecast.  

The markets are now pricing in a 99.7 per cent probability that the Reserve Bank of Australia will keep rates steady for the third consecutive month in September.

The S&P/ASX 200 index ended the day 1.2 per cent higher. China’s benchmark CSI 300 index and Hong Kong’s Hang Seng index were both flat.

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