Stocks finished lower Friday, while the dollar resumed its climb on foreign exchange markets and Treasury yields tested new highs, as investors navigate an increasingly narrow path between slowing global growth and hawkish central bank signaling.
Solid data from China Friday, which reported better-than-expected gains for retail sales and industrial output over the month of August, failed to offset global recession concerns expressed yesterday by the World Bank, which said its seeing the steepest slowdown since the early 1970s, adding that a "moderate hit to the global economy over the next year could tip it into recession".
"To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production," said World Bank President David Malpass. "Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”
The International Monetary Fund wasn't quite as gloomy, noting it's too early to make a call on a 2023 recession, but nonetheless trimmed its growth forecasts for this year and next ahead of its more detailed autumn report slated for next month.
Near-term warnings on extended supply chain disruptions from General Electric, meanwhile, as well as a dire near-term outlook from FedEx only echo the concerns underpinning recession forecasts.
At the same time, rate hike signaling from the Federal Reserve, Bank of England and the European Central Bank has investors worried that weakening fundamentals will be made worse by higher borrowing costs, driving them into safe-haven assets such as the U.S. dollar.
The dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.02% higher in the overnight session to 109.598 pushing the pound to its lowest levels since March of 1985.
The odds of a 100 basis point move from the Fed next week, which would be the biggest since 1984, are holding firm at around 16%, based on data reflected in the CME Group's FedWatch, with bets on follow-on hikes likely to lift the Fed Funds rate to between 4.25% and 4.5% by the end of February.
Bond markets are warning of recession, as well, with 2-year note yields rising to 3.903% in overnight trading, pegging the difference over 10-year note at 43.4 basis points.
A key reading of consumer sentiment, due today at 10:00 am Eastern time, could provide further details as to whether the largest portion of the domestic economy is prepared to contribute to growth prospects over the coming months.
With gas prices tumbling and stock prices still north of their early June lows, economists had expected to see a solid jump in the headline portion of the University of Michigan's benchmark for the month of September, but the gauge only rose by less than a point to 59.5 - compared to a measure as high as 70.6 prior to Russia's invasion of Ukraine earlier this year.
The survey also noted that 1-year inflation forecasts were unchanged at 4.6%, a crucial figure given the headwinds seen in U.S. retail sales -- despite the decline in gas prices -- and the surprisingly quick rates of both headline and core readings for the month of August.
"The Fed may achieve its goal of a 'Goldilocks' soft landing as consumer demand is neither too hot nor too cold," said Jeffrey Roach, Chief Economist for LPL Financial in Charlotte, North Carolina. "Consumers are showing amazing resiliency as buying conditions for major ticket items are better than the June lows but still look weak."
"Falling gas prices should boost consumer spending in the near term but tightening financial conditions create growing risks for next year," he added.
On Wall Street the S&P 500 finished down 0.72%, while the Dow Jones Industrial Average fell 139 points, or 0.45%, to 30,822. The tech-focused Nasdaq lost 0.90%. All three indexes finished the week sharply lower.
European stocks were marked 1.48% lower in late-day Frankfurt trading, following on from a 1.4% decline for the region-wide MSCI ex-Japan index in Asia.
FedEx (FDX) shares fell nearly 22% after the world's biggest package delivery group pulled its full-year earnings guidance following a surprise first-quarter update after the close of trading on Thursday.
General Electric (GE) shares slumped 3.6% after the industrial group cautioned that ongoing supply chain disruptions could trim its closely-tracked cashflow forecasts.
Uber Technologies (UBER) fell 3.7% after it confirmed a New York Times report of a cybersecurity breach into the ride-sharing group's internal IT systems.
