Australia

Australian stocks are set to open flat as recession fears weighed on Wall Street ahead of fresh inflation data due out early Thursday morning AEST.

ASX futures were unchanged at 6506 as of 8.00am on Wednesday, pointing to a flat open.
The S&P 500 fell for a third consecutive session, losing 0.9%, to 3818.80. The Dow Jones Industrial Average declined 0.6%, to 30981.33. The technology-focused Nasdaq Composite shed 0.9%, to 11264.73. Losses accelerated in the final hour of the trading session.

Worries about an economic slowdown have stoked a rapid reversal in oil prices, which had raced higher for much of the year. Brent crude futures, the benchmark in international energy markets, fell 7.1% to $99.49 a barrel, snapping a three-session winning streak and hitting the lowest settle value since April.

Many investors are waiting for fresh inflation data, due on Wednesday, Major indexes, oil prices and bond yields have fallen ahead of the release. Some investors appeared reluctant to make big moves ahead of the inflation data, leading to modest gains and losses throughout the session before major indexes turned lower late in the trading day.

"We don't really see anybody making any big bets right now in equities," said R.J. Grant, director of equity trading at KBW. "Nobody wants to be heroic right now."

Locally, the S&P/ASX 200 closed less than 0.1% higher at 6606.3, finishing near its session low amid weakness in materials and tech stocks.

The benchmark index faded steadily after rising as much as 0.7% in early trade. The 10 worst performing index components were all miners or tech companies, with four of them engaged in lithium operations. The materials sector finished 1.2% lower.

Tech dropped 0.55%, with only sector giants Computershare and WiseTech gaining ground. Banks ANZ, Westpac, Commonwealth and NAB rose by between 0.5% and 1.3%, although buy-now-pay-later provider Zip Co was the best-performing financial stock, jumping 6.0% after scrapping its merger with Sezzle.

In commodity markets, Iron ore fell 7.2% to $US105.80, while gold declined 0.4% to US$1724.80.

In local bond markets, the yield on Australian 2 Year government bonds fell to 2.47% while the 10 Year dipped to 3.41%. Overseas, the yield on 2 Year US Treasury notes slipped to 3.05% and the yield on the 10 Year US Treasury notes edged down to 2.97%.

The Australian dollar is up 0.30% to 67.55 US cents as of 6.30am AEST. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies fell to 99.78.

Asia

China stocks ended the session lower, extending a broad downturn so far this month as the market pulled back from substantial gains in June. Analysts have warned of rising Covid-19 risks after a number of cities reported an uptick in infections over the past few days. The benchmark Shanghai Composite Index fell 1.0% to settle at 3281.47, while the Shenzhen Composite Index shed 1.5% to 2155.56. The tech-heavy ChiNext Price Index suffered the worst loss, ending 2.3% lower at 2702.69. Auto companies led the downturn as the sector continued to retreat from earlier soaring momentum that was driven by the government's car consumption support measures. BYD shed 4.7% and Changan Auto was down 4.5%.

Hong Kong stocks extended early losses to end 1.3% lower at 20844.74, weighed down by worries about the rise in China's Covid-19 cases and ensuing lockdowns. Sentiment was also hit by overnight declines in US stocks amid fears of a recession. BYD Co. was the worst performer and ended 12% lower amid unconfirmed reports that major backer Warren Buffett is planning to sell shares in the Chinese electric-car maker. Tech stocks slid amid regulatory jitters in the wake of China fining tech giants like Alibaba and Tencent. The Hang Seng Tech Index dropped 2.1% to 4524.11. Alibaba Group fell 5.4% and Tencent ended 1.3% lower.

Japanese stocks ended lower, dragged by falls in machinery and electronics stocks, as concerns continue about higher costs of operations and the economic outlook. Pneumatic-control device maker SMC dropped 6.2% and TDK Corp. lost 5.1%. The Nikkei Stock Average fell 1.8% to 26336.66. Investors are focusing on any policy-related developments, following the ruling coalition's recent election victory and the death of former Prime Minister Shinzo Abe. USD/JPY is at 137.38, compared with 137.43 as of Monday 5 p.m. Eastern time. The 10-year Japanese government bond yield falls half a basis point to 0.235%.

Europe

European stocks rose in closing trade, recovering after earlier losses on worries over weaker global economic growth. The Pan-European Stoxx Europe 600 rose 0.5%, the German DAX gained 0.6% and the French CAC 40 added 0.8%. French utility EDF jumped 5.8% after reports the government is willing to pay more than EUR8B to nationalize the energy company.

"It's been another challenging day for markets in Europe with concerns over a global economic slowdown once again driving sentiment, which in turn appears to be driving a move into bonds, pushing yields lower," CMC Markets analyst Michael Hewson writes.

Despite these concerns, European equities look to close the day in positive territory after an initial weak start, he says.

London FTSE 100 closed up 0.18% on Tuesday, following an initially weak start. It's been a challenging day for European markets with concerns over a global economic slowdown apparently driving a move into bonds and pushing yields lower, and hitting the resources and energy sector by pressuring oil prices, Michael Hewson, chief market analyst at CMC Markets U.K. says in a note.

"These concerns are once again being reflected by resilience in the traditional safe havens of utilities and health care, with Centrica [PLC] and SSE [PLC] building on their rebounds yesterday, while airlines have also rebounded led by [International Consolidated Airlines Group S.A.]," Mr. Hewson says.

North America

Fears about a recession on the horizon weighed on stocks, oil and bond yields, continuing a volatile stretch for global markets.

The S&P 500 fell for a third consecutive session, losing 0.9%, to 3818.80. The Dow Jones Industrial Average declined 0.6%, to 30981.33. The technology-focused Nasdaq Composite shed 0.9%, to 11264.73. Losses accelerated in the final hour of the trading session.

Worries about an economic slowdown have stoked a rapid reversal in oil prices, which had raced higher for much of the year. Brent crude futures, the benchmark in international energy markets, fell 7.1% to $99.49 a barrel, snapping a three-session winning streak and hitting the lowest settle value since April.

Falling oil prices pressured shares of energy companies, which were the biggest losers within the S&P 500 on Tuesday, continuing a stretch of volatility for a group that had been a star performer for much of the year. The energy sector lost 2%. Shares of Hess fell 3.9%, while Marathon Oil dropped 3.1%.

Many investors are waiting for fresh inflation data, due on Wednesday, Major indexes, oil prices and bond yields have fallen ahead of the release. Some investors appeared reluctant to make big moves ahead of the inflation data, leading to modest gains and losses throughout the session before major indexes turned lower late in the trading day.

"We don't really see anybody making any big bets right now in equities," said R.J. Grant, director of equity trading at KBW. "Nobody wants to be heroic right now."

Some traders attributed the worsening late-afternoon declines to a tweet from the White House Director of the National Economic Council, saying that the coming inflation figures would be "significantly affected by stale gas price data." Some traders interpreted the message as a sign that tomorrow's data would be worse than many had expected.

High inflation and the Fed's path forward have roiled markets for months, and some analysts said they weren't expecting Wednesday's data to stoke optimism about the path of inflation.

"We think it is unlikely that [the June consumer-price index] will be the first in the string of softer inflation prints," wrote Citigroup analysts in a note to clients Tuesday. "Markets could still be particularly sensitive to another upside surprise."

For now, though, the Fed is intent on pushing rates up in an attempt to tame high prices. Investors say that campaign, coupled with signs that the US economy is losing momentum, could spell more pain for markets after a rough first half of the year. Adding to the challenges for money managers are China's struggle to contain Covid-19 and the war in Ukraine.

Chatter about a recession has dominated Wall Street lately. Data from the National Federation of Independent Business showed confidence among small-business owners fell to its lowest level in almost a decade in June.

"The investors we speak to are generally well-hedged, expecting economic conditions to deteriorate further," said Anand Omprakash, head of derivatives and quantitative strategy at Elevation Securities.

Some investors appeared to grow more cautious ahead of the inflation report in other corners of the market. Call options volume on Monday fell to the lowest level seen since 2020, excluding trading days that fall on holidays, according to Danny Kirsch, head of options at Piper Sandler & Co. Call options give investors the right, though not the obligation, to buy stocks at a specific price, by a stated date.

Earnings season among major US companies will pick up speed later in the week with results due from major financial institutions. Investors will pay particular attention to bank executives' commentary on the trajectory of the economy, and to the effects of higher input costs on profit margins.

Some investors have said that they are expecting bigger divergences among stocks and sectors within the broader market, as coming financial results shape the market's winners and losers.

"The days of 'buy the dip,' I think, are largely behind us," said Neil Desai, a portfolio manager at Putnam Investments. "We're definitely more cautious."

Elsewhere in commodities, copper prices fell 4.1% to the lowest level since November 2020, continuing a recent decline. The industrial metal, a barometer for the world economy because of its use in construction and heavy industry, has fallen to more than 30% below its high recorded in March.