Australia

Australian shares are set to fall as US indexes declined for a second day after strong economic data raised concerns further interest rate hikes will be necessary to cool the economy.

ASX futures were down 55 points or 0.8% at 7181 as of 8.00am on Thursday, pointing to a fall at the open.

All three major US indexes handed back morning gains on Wednesday. The S&P 500 lost 0.7% by day end. The Dow Jones Industrial Average fell 0.5%, while the technology-focused Nasdaq Composite declined 0.7%.

An index of US manufacturing activity rose to 56.1 in May from 55.4 in April. Economists surveyed by The Wall Street Journal had expected a decline to 54.5. A reading above 50 indicates expansion.

Wednesday's session ushers in a new trading month, but few investors expect a reprieve from the volatility that has dominated markets this year. Many traders remain worried about the pace of the Federal Reserve's interest-rate increases and whether they will plunge the US economy into a recession. Eight of the last 11 extended Fed rate-rise cycles have eventually ended in recession, according to Deutsche Bank analysts.

"Most of the gains we saw last week have been a bear-market rally," said Chris Wallis, CEO and chief investment officer for Vaughan Nelson Investment Management. "I think we will have prolonged volatility, but sometime between June and September there is a good chance for a market bottom."

Locally, the S&P/ASX 200 closed 0.3% higher at 7234.0 as gains by shares of banks offset weakness among mining stocks. The benchmark index shrugged off a weak lead by US stocks to open higher but had to rally at the last after briefly dipping into negative territory.

Data released mid-session showed the economy grew by more than expected in the March quarter.

Banks NAB, Westpac, ANZ and Commonwealth put on between 0.9% and 2.25%.

Lithium miners Liontown and Pilbara Minerals fell by 19% and 22%, respectively. A note by Goldman Sachs analysts said they believe the lithium bull market is over. Gold stocks also fell.

In commodity markets, Brent crude oil rose 0.6% to US$116.29 a barrel. Iron ore nudged up US5 cents to US$136.55. Gold was down 0.5% at US$1839.50.

Local bond markets sold off as risk appetite waned and the yield on Australian 2 Year government bonds rose to 2.49% while the 10 Year jumped to 3.41%. Overseas, the yield on US 2 year Treasury notes rose to 2.64% and the yield on the US Treasury 10 year notes increased to 3.06%.

The Australian dollar traded at 71.72 US cents as of 7.00am, down from the previous close of 71.75 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies advanced to 95.11.

Asia

Chinese stocks ended mixed, pulling back from gains on Tuesday that were driven by news of Shanghai's further easing of Covid restrictions. The benchmark Shanghai Composite Index edged down 0.1% to settle at 3182.16, while the Shenzhen Composite Index rose 0.3% to 2012.65 and the ChiNext Price Index gained 1.0% to 2428.96. Auto companies, including car makers, component suppliers and after-sales services providers, led the gains after a district in Shanghai rolled out cash-subsidy programs for car purchases on top of the city-level stimulus announced over the weekend. But that momentum was offset by losses in restaurant and hotel operators, which gave up reopening-driven gains earlier in the session.

Hong Kong stocks ended lower, following their A-share counterparts, which reversed the previous day's gains on Shanghai's plans for further reopening from its Covid-19 lockdown. The benchmark Hang Seng Index edged down 0.6% to settle at 21294.94. Medical companies led the downturn, as CSPC Pharmaceutical dropped 6.1% and Wuxi Biologics fell 2.0%. Consumer goods companies, which led gains the past session, further weighed on the market. China Resources Beer lost 1.4% and Nongfu Spring was down 1.1%.

Japanese stocks ended higher, led by gains in auto and financial stocks, as the yen's weakening bolstered hopes for an earnings recovery. Nissan Motor jumps 7.8% and Bank of Kyoto advances 4.9%. The Nikkei Stock Average rises 0.7% to close at 27457.89.

Europe

European markets fell after upbeat economic data fuelled investor concerns about US interest-rate rises. The pan-European Stoxx Europe 600 and London’s FTSE 100 both dropped 1% and the French CAC 40 and German DAX retreated 0.8% and 0.3% respectively.

"European markets have had a slow start to the month, trying to push higher," CMC Markets analyst Michael Hewson writes. "However, gains have melted away in the afternoon session, pushing prices towards the lows of the day, after a stronger-than-expected ISM manufacturing report undermined the possibility of a pause in the US rate-hiking cycle in September.

North America

US stock indexes declined on the first day of June, after capping a volatile trading month.

All three major US indexes handed back morning gains. The S&P 500 lost 0.7%. The Dow Jones Industrial Average fell 0.5%, while the technology-focused Nasdaq Composite declined 0.7%.

On Tuesday, major US indexes dropped, leading the S&P 500 to end May roughly flat after a month marked by major moves in both directions.

Wednesday's session ushers in a new trading month, but few investors expect a reprieve from the volatility that has dominated markets this year. Many traders remain worried about the pace of the Federal Reserve's interest-rate increases and whether they will plunge the US economy into a recession. Eight of the last 11 extended Fed rate-rise cycles have eventually ended in recession, according to Deutsche Bank analysts.

Still, many traders say a recession isn't guaranteed, and any significant economic slowdown in the US could be months away. That has led some investors to wade into the market and scoop up shares with beaten-down valuations, injecting more volatility into markets.

Many investors and strategists say they are still questioning whether last week's rally, when all three major US indexes jumped at least 6%, was the start of a more sustainable rebound or whether it was only a break from this year's selling pressure.

"Most of the gains we saw last week have been a bear-market rally," said Chris Wallis, CEO and chief investment officer for Vaughan Nelson Investment Management. "I think we will have prolonged volatility, but sometime between June and September there is a good chance for a market bottom."

Mr. Wallis doesn't rule out the possibility of a recession, driven by a global growth slowdown and an inflation surge, this year.

Dave Sekera, Morningstar's chief US equity strategist, came into the year with a bullish view on value stocks but now believes growth stocks, which have taken a beating this year, are undervalued. The Russell 1000 Value Index is down 6% this year, while the Russell 1000 Growth Index has plunged 23%.

"Oftentimes, the market acts like a pendulum. We think sometimes it swings too far in one direction or the other," he said.

Clear signalling from the Fed on the need for half-percentage-point interest-rate increases at the Fed's June and July policy meetings has offered reassurance to traders recently. What happens after that, however, is less clear. Canada's central bank increased its policy interest rate by a half-percentage point on Wednesday.

"The question for us is whether [the recent rally] is a one-month or six-month phenomenon," said Viraj Patel, global macro strategist for Vanda Research. He said he expects to see US stocks grind higher in the coming weeks in the absence of a big data shock, but doesn't yet believe stocks are on pace for a longer-term rally.

More lightly staffed trading desks during the summer months could also spur volatility in the weeks ahead. Summer trading tends to have lower trading volumes and less liquidity, leading to more dramatic moves in stocks. Many investors are also bracing for more volatility ahead in other asset classes, which have also notched wide swings this year.

In economic data, the Institute for Supply Management's index of US manufacturing activity rose to 56.1 in May from 55.4 in April. Economists surveyed by The Wall Street Journal had expected a decline to 54.5. A reading above 50 indicates expansion.

Hiring demand in the US remains strong as Americans continued to leave jobs at an elevated level. The Labor Department on Wednesday released figures showing that seasonally adjusted job openings fell to 11.4 million in April from an upwardly revised 11.9 million in March. The tight jobs market has driven up wages and contributed to historically high inflation.

As more closely watched economic data about inflation and gross domestic product are released in the next few months, the market could stabilize and break away from whipsawed trading sessions.

"I do think the second half of the year can be better than the first half because we will have more of that information," said Liz Young, head of investment strategy at SoFi.

The yield on the 10-year US Treasury note advanced to 2.930%, from 2.842% Tuesday. Yields and bond prices move inversely. Yields on the benchmark note still remain well below this year's closing high of 3.124%, but have advanced this week as traders have continued to reassess the path of interest rates.

Crude prices rose, as investors digested European Union leaders' plan to impose an oil embargo on Russia and a ban on insuring ships that carry Russian oil. Some OPEC members are also exploring the idea of suspending Russia's participation in an oil-production deal.

Brent crude, the international benchmark for oil prices, rose 0.6% to $116.29 a barrel. Though oil prices have fallen from their levels reached shortly after the war began in Ukraine, they have begun to move higher recently, as traders digested European Union leaders' plans and the easing of Covid-19 restrictions in China.

"Oil prices have gone on a roller-coaster ride...and I think the likelihood is that they will stay elevated," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. "I still think oil and high energy costs are going to be an inflationary factor weighing on markets."

Salesforce surged $15.83, or 9.9%, to $176.07 after reporting revenue that outpaced analyst expectations, easing concerns about demand for its business software. The stock was the best performer in both the Dow and S&P on Wednesday, according to Dow Jones Market Data. Shares of Victoria's Secret rose $3.68, or 8.9%, to $44.89 after recording a profit that exceeded analyst expectations.

Shares of energy companies swung between gains and losses in volatile intraday trading. Occidental Petroleum gained $1.11, or 1.6%, to $70.42.