By Sinéad Carew

NEW YORK (Reuters) – Wall Street indexes were firmly in the red after a choppy start to Thursday’s session while bond yields rose as investors digested economic data that provided the Federal Reserve little reason to ease its aggressive interest rate hiking cycle.

Oil futures tumbled more than 3% on demand concerns and after a tentative agreement that would avert a U.S. rail strike, as well as continued U.S. dollar strength with expectations for a large U.S. rate increase. (Full Story)

Economic data showed U.S. retail sales unexpectedly rebounded in August as Americans ramped up purchases of motor vehicles and dined out more while taking advantage of lower gasoline prices. But data for July was revised downward to show retail sales declining instead of flat as previously reported.

Separately the Labor Department said initial claims for state unemployment benefits fell for the week ended Sept. 10 to the lowest level since the end of May. (Full Story)

Investors are widely expecting an aggressive rate hike after the Federal Open Market Committee (FOMC) meeting next week, but nervously awaiting hints from Fed Chair Jerome Powell about future policy moves, said Quincy Krosby, chief global strategist at LPL Financial.

“The market remains choppy knowing that there’s a Fed meeting next week. Even though participants agree that it’ll be a 75 basis points rate hike, it’s what the statement adds to previous commentary and what Chairman Powell says in his press conference” that have them worried, Krosby said.

The Dow Jones Industrial Average .DJI fell 173.07 points, or 0.56%, to 30,962.02; the S&P 500 .SPX lost 44.69 points, or 1.13%, to 3,901.32 and the Nasdaq Composite .IXIC dropped 167.32 points, or 1.43%, to 11,552.36. .N

MSCI’s gauge of stocks across the globe .MIWD00000PUS shed 0.96% while emerging market stocks .MSCIEF lost 0.57%.

Stocks, bonds and currencies on Thursday were showing a market “increasingly understanding the Fed is going to hike more aggressively next week,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina.

Referring particularly to the still strong labor market, Ladner said “economic numbers released today are tying a bow on the situation.”

Treasury yields rose with the two-year hitting fresh 15-year highs, after data on retail sales and jobless claims showed a resilient economy that gives the Fed ample room to aggressively hike interest rates.

Also already signaling a recession warning the inverted yield curve – the gap between 2-year and 10-year treasury yields US2US10=RR – widened further to -41.4 basis points, compared with -13.0 bps a week ago. US/

Benchmark 10-year notes US10YT=RR were up 4.5 basis points to 3.457%, from 3.412% late on Wednesday. The 30-year bond US30YT=RR last fell 5/32 in price to yield 3.4779%, from 3.469%. The 2-year note US2YT=RR last fell 5/32 in price to yield 3.8646%, from 3.782%.

“In this vicious cycle where the data continues to remain resilient, that would imply a Fed that would likely stay the course and continue to tighten policy,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.

Also clouding investors’ moods on Thursday was the World Bank’s assessment that the world may be edging toward a global recession as central banks across the world simultaneously hike interest rates to combat persistent inflation. (Full Story)

In currencies the dollar was slightly higher against the yen while the Swiss franc hit its strongest level against the euro since 2015. (Full Story)

The dollar index =USD, which measures the greenback against a basket of major currencies, rose 0.091%, with the euro EUR= up 0.18% to $0.9995.

The Japanese yen weakened 0.19% versus the greenback at 143.44 per dollar, while Sterling GBP= was last trading at $1.1469, down 0.57% on the day.

Before the tentative labor agreement, fears of a U.S. railroad worker strike had supported oil prices due to supply concerns on Wednesday. In addition, the International Energy Agency (IEA) said this week that oil demand growth would grind to a halt in the fourth quarter. IEA/M O/R

U.S. crude CLc1 settled down 3.82% at $85.10 per barrel while Brent LCOc1 finished at $90.84, down 3.46% on the day.

Gold dropped to its lowest level since April 2021, hurt by elevated U.S. Treasury yields and a firm dollar, as bets of another hefty Fed rate hike eroded bullion’s appeal. (Full Story)

Spot gold XAU= dropped 1.9% to $1,664.46 an ounce. U.S. gold futures GCc1 fell 2.02% to $1,662.30 an ounce.

(Additional reporting by Herbert Lash in New York, Marc Jones in London, Stefano Rebaudo in Milan, Tom Westbrook in Singapore and Wayne Cole in Sydney; Editing by Kirsten Donovan and Jonathan Oatis)

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