Stocks diverge as US economy shows resilience / Photo: Brandon Bell - GETTY IMAGES NORTH AMERICA/AFP/File
Stocks diverge as US economy shows resilience
Stocks diverged Thursday as investors weighed strong US economic data against renewed central bank warnings that interest rates would rise further to tame inflation.
Wall Street opened flat while Treasury yields and the dollar rose after the Commerce Department sharply revised the first quarter growth rate to 2.0 percent.
While that is still slower than in previous quarters, it shows that the US economy is resisting well to the repeated interest rate hikes implemented by the Federal Reserve to cool inflation.
Strong consumer spending despite inflation eroding purchasing power helped drive growth during the January to March period.
"Granted this is a backward-looking report, yet the key takeaway is that it underscores how the strength of the labor market fueled consumer spending in the first quarter and helped forestall any recession-like trajectory in the US economy," said analyst Patrick O'Hare at Briefing.com.
The latest data on first-time jobless claims, which dipped to 239,000 last week, pointed to continued strength in the US economy.
"In the recessions seen since 1980, initial jobless claims have averaged north of 375,000, so the key takeaway from today's report is that the labor market continues to be resilient, which is a good portent for the economy," said O'Hare.
The data increases the chances that the Fed will raise rates again at its meeting in July after having held off at its June meeting in order to gauge the impact of its previous hikes on the US economy.
Speaking at a banking event in Madrid, Fed boss Jerome Powell on Thursday reiterated his warning that two more US rate hikes were probably necessary by the end of the year as there was still "a long way to go" to bring inflation down to the Fed's two-percent target.
A day earlier, he told an annual gathering of central bankers in Sintra, Portugal, that "policy hasn't been restrictive enough for long enough".
He added policymakers had not decided whether to go for two successive increases or at alternate meetings and warned rates could stay high for some time as the board tries to cut inflation down from the current four percent to two percent.
"We will be restrictive as long as we need to be," he said.
Powell's comments came after European Central Bank chief Christine Lagarde said eurozone borrowing costs would continue to rise, even as the economy of the 20-nation currency zone is in recession.
German inflation climbing to 6.4 percent in June will likely only reinforce the determination of ECB policymakers to raise rates further.
Sweden on Thursday hiked its key interest rate to 3.75 percent, the highest level in nearly 15 years.
Europe's major stock markets were mixed in afternoon trading.
In Asian trading, worries over the outlook for China additionally weighed on sentiment in Hong Kong and Shanghai after mainland officials failed to provide any details on plans to boost growth, despite pledges of help.
- Key figures around 1330 GMT -
New York - Dow: DOWN less than 0.1 percent at 33,835.40 points
London - FTSE 100: DOWN 0.5 percent at 7,460.89
Frankfurt - DAX: DOWN less than 0.1 percent at 15,938.24
Paris - CAC 40: UP 0.4 percent at 7,317.07
EURO STOXX 50: UP 0.2 percent at 4,354.24
Tokyo - Nikkei 225: UP 0.1 percent at 33,234.14 (close)
Hong Kong - Hang Seng Index: DOWN 1.2 percent at 18,934.36 (close)
Shanghai - Composite: DOWN 0.2 percent at 3,182.38 (close)
Euro/dollar: DOWN at $1.0874 from $1.0917 on Wednesday
Pound/dollar: DOWN at $1.2605 from $1.2637
Dollar/yen: UP at 144.78 yen from 144.47 yen
Euro/pound: DOWN at 86.27 pence from 86.36 pence
Brent North Sea crude: FLAT at $74.02 per barrel
West Texas Intermediate: FLAT at $69.55 per barrel
burs-rl/lth
L.Aitken--RTC
