Wall Street points lower as foreign currencies tumble

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U.S. markets were poised to open lower on Wednesday as investors fret over the prospect of a possible recession while another global currency came under pressure.

Futures for the Dow Jones industrials slipped 0.4% and futures for the S&P 500 tumbled 0.6%.

China’s yuan recovered slightly after falling to a 14-year low against the dollar Wednesday despite central bank efforts to stem the slide after U.S. interest rate hikes prompted traders to convert money into dollars in search of higher returns.

At one point, the yuan fell to 7.2301 to the dollar, its lowest level since January 2008. One yuan was worth about 13.8 cents, down 15% from its March high.

A weaker yuan helps Chinese exporters by making their goods cheaper abroad, but it encourages capital to flow out of the economy. That raises costs for Chinese borrowers and sets back the ruling Communist Party’s efforts to boost weak economic growth.

Chinese shares weakened, with the Shanghai Composite index losing 1.6% to 3,045.07. The Hang Seng in Hong Kong plunged 3.4% to 17,250.88.

Elsewhere in Asia, Tokyo’s Nikkei 225 index sank 1.5% to 26,173.98 while the Kospi in Seoul lost 1.5% to 2,169.29. In Sydney, the S&P/ASX 200 gave up 0.5% to 6,462.00.

Also Wednesday, the Bank of England said it will launch a temporary government bond-buying program to stave off “material risk to U.K. financial stability” after unfunded government tax cuts spooked markets and sent the British pound tumbling.

The emergency intervention means the central bank will buy government bonds in an effort to stabilize the market and drive down the soaring cost of government borrowing.

The move came after the International Monetary Fund urged Britain’s Conservative government to “reevaluate” unfunded tax cuts that it says may fuel inflation and are likely to increase economic inequality.

After the rare IMF warning to a Group of Seven economy, the value of the pound sagged Wednesday morning, trading at under $1.07. The central bank intervention did not boost it.

The British government said it was underwriting the central bank’s emergency bond purchases, which are due to last for two weeks.

At midday, the FTSE in London was down 0.8%, Germany’s DAX lost 1.3% and the CAC40 in Paris tumbled 1.2%.

The week started off with a broad sell-off that sent the Dow Jones Industrial Average into a bear market, joining other major U.S. indexes.

On Tuesday, the S&P 500 slipped 0.2%, its sixth consecutive loss. The Dow fell 0.4% and the Nasdaq composite wound up with a 0.2% gain.

Small company stocks held up better than the broader market. The Russell 2000 added 0.4%.

Major indexes remain in an extended slump on fears that the higher interest rates being used to fight inflation could knock economies into recession.

The S&P 500 is down roughly 8% in September and has been in a bear market since June, when it had fallen more than 20% below its all-time high set on Jan. 4. The Dow’s drop on Monday put it in the same company as the benchmark index and the tech-heavy Nasdaq.

Central banks around the world have been raising interest rates to make borrowing more expensive and cool the hottest inflation in decades. The Federal Reserve has been particularly aggressive. It raised its benchmark rate, which affects many consumer and business loans, again last week. It now sits at a range of 3% to 3.25%, but was near zero at the start of the year.

The Fed also has released a forecast suggesting its benchmark rate could be 4.4% by the year’s end, a full percentage point higher than it envisioned in June.

Wall Street is worried that the Fed will hit the brakes too hard on an already slowing economy and veer it into a recession. The higher interest rates have been weighing on stocks, especially pricier technology companies, which tend to look less attractive to investors as rates rise.

Investors will be watching the next round of corporate earnings very closely to get a better sense of how companies are dealing with inflation. Companies will begin reporting their latest quarterly results in early October.

The government will release its weekly report on unemployment benefits on Thursday, along with an updated report on second-quarter gross domestic product. On Friday, the government will release another report on personal income and spending that will help provide more details on where and how inflation is hurting consumer spending.

In other trading Wednesday, U.S. benchmark crude gained 40 cents to $78.90 per barrel in electronic trading on the New York Mercantile Exchange.

Brent crude, used to price international oils, picked up 41 cents to $85.26 per barrel in London.

The dollar fell to 144.71 Japanese yen from 144.81 yen. The euro was at 95.68 cents, down from 95.92 cents.

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