The lowdown:

Bell Direct market analyst Grady Wulff said investor sentiment soured in afternoon trade after Reserve Bank governor Philip Lowe told the National Press Club in Sydney that it was “way too early to be talking about interest rate cuts,” after holding the cash rate steady on Tuesday.

“The Reserve Bank’s pause on the cash rate was a welcome change on Tuesday for investors,” Wulff said. “But Lowe then said the RBA was simply taking a break to see if inflation is under control, which very quickly dampened investor sentiment.”

The surprise cut to oil production by OPEC on Monday, while initially taken as a positive for energy companies, had begun to spark recession fears, weighing on investor sentiment. “Investors took a step back as recession fears came in,” Wulff said.

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He added that uncertainty about the direction of interest rate movements paired with the possibility of recession drove investors towards safe haven sectors such as healthcare where they could hedge their bets.

Meanwhile, stocks fell on Wall Street on Tuesday after reports on the economy came in weaker than expected.

The S&P 500 dropped 0.6 per cent to break a four-day winning streak. The Dow Jones fell 0.6 per cent and the Nasdaq sank 0.5 per cent.

Investors are still split on whether the US economy will fall into a recession and how badly corporate profits are set to drop. The biggest question remains what the Federal Reserve will do next with interest rates after hiking them furiously over the last year to get high inflation under control.

The reports on job openings and factory orders released on Tuesday may have heightened recession fears. But they may also give the Fed reason to hold rates steady at its next meeting, for the first time in more than a year, offering a possible upside for markets.

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One report showed employers advertised 9.9 million job openings in February, a sharper fall-off than economists expected. The Fed has been paying close attention to the numbers because the job market has remained so strong despite higher rates. The hope is that a softening in the number of openings could take some pressure off inflation without having to throw many people out of work.

A separate report showed that factory orders weakened in February more than economists expected. That could give the Fed another reason to hold off on hiking rates again to beat inflation, which has been slowing but remains too high.

“It’s all suggesting that the economy is slowing down, which was the Fed’s intent all along in terms of raising rates,” said Michael Arone, chief investment strategist for SPDR business at State Street Global Advisors.

What the Fed does has such a grip on Wall Street because higher interest rates undercut inflation by slowing the entire economy, which raises the risk of a recession. They also hurt prices for stocks, bonds and other investments.

A potentially more impactful report will arrive on Friday, when the US government gives the latest monthly update on how many jobs were created across the country.

That has helped to buoy stocks, particularly technology and other high-growth companies, because rate cuts tend to act like steroids for markets. But the Fed has been consistent in saying it does not expect any rate cuts this year.

Critics also are sceptical, saying inflation still remains too high for the Fed’s liking. And any cut in rates would likely come only if the economy were in much weaker shape, something that could torpedo stocks too.

Tuesday’s weaker-than-expected readings on the economy follow a report on Monday that showed US manufacturing continues to shrink faster than economists forecast.

Given such weakness, this is “not the time to chase growth,” suggested Mark Haefele, chief investment officer of UBS Global Wealth Management.

On Wall Street, shares of Virgin Orbit plunged 23.2 per cent to 15 cents after the company filed for Chapter 11 bankruptcy protection. It’s been contending with the fallout of a failed mission this year and increasing difficulty in raising funding for future missions.

Tweet of the day:

Quote of the day:

“It’s when firms use the cover of the highly publicised rises in their costs to add a bit extra to their price rises that inflation takes off,” said the Herald’s economics editor Ross Gittins, writing about why pay rises won’t screw the economy.

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With AP