US equities fell during volatile trading on Wednesday, while Treasuries rose after retail sales and industrial production fell more than expected in December, leading some investors to believe the world’s largest economy is already in recession.

Wall Street’s blue-chip S&P 500 fell 0.8 percent, reversing previous gains and dragged lower by all sectors except energy and materials, with consumer non-cyclicals posting the biggest declines. The tech-heavy Nasdaq Composite fell 0.6 percent after previously rising 0.8 percent.

US government bonds, meanwhile, rallied, with 10-year Treasury yields falling 0.11 percentage point to 3.43 percent, after peaking at 4.24 percent at the end of October. Bond yields move inversely to prices.

The measures came after US retail sales fell 1.1 percent in December from the previous month, according to data from the Commerce Department, with economists polled by Reuters predicting a smaller drop of 0.3 percent.

Analysts at ING argued that “such poor retail sales”, on top of separate data published Wednesday showing US industrial production fell 0.7 percent in December compared to the previous month, suggest “a recession is on the way and that in fact we could is already in it”.

There was better news for investors on the inflation front: the producer price index, which tracks the prices companies receive for their goods and services, fell 0.5 percent month on month — more than the 0.1 percent decline predicted by economists. predicted.

Services inflation, meanwhile, rose “only” 0.1 percent, which Morgan Stanley analysts say “sent a mellower signal about price pressures in the wage-sensitive parts of the economy”.

The U.S. bank earlier this week doubled its bearishness against the dollar, which boomed in the first half of 2022 as U.S. interest rates rose in response to rising price growth. A measure of the dollar’s strength against a basket of six counterparts fell 0.2 percent on Wednesday, as the currency weakened 9.8 percent over the past three months.

Recession fears are mounting in the US, but some investors are growing confident that central banks will soon be able to pause rate hikes now that they believe headline inflation has peaked. At the same time, the economic reopening in China has supported the idea that a slowdown in the US and Europe this year will be less pronounced than previously thought.

Gita Gopinath, deputy director of the IMF, indicated this week that the fund would revise its economic forecasts, while German chancellor, Olaf Scholz, told Bloomberg that the eurozone’s largest economy would avoid recession.

Rate markets are pricing in about a 90 percent chance that the Fed will raise its key policy rate by a quarter of a percentage point when it meets in early February, following a half percentage point increase in December.

“If Fed members lean toward 50 [basis points]they’re going to have to make some public noises and drop the breadcrumbs,” said Mike Zigmont, head of trading and research at Harvest Volatility Management. “The ball is in the Fed’s court.”

Interest rates may be closer to their peak, but the effects of last year’s aggressive monetary tightening, when US borrowing costs rose about 4.25 percentage points, are only just beginning to show in corporate results.

Analysts from S&P Global said they expected the impact of the “fastest pace of interest rate hikes in recent history to become increasingly visible in issuers’ operating performance and trading prospects” as fourth-quarter numbers were expected to be released in the coming weeks. to be made.

Elsewhere, the Bank of Japan refrained from further adjusting its measures to control the yield curve, pushing equities higher and the yen lower against the dollar. Yields on 10-year Japanese bonds fell from 0.5 percent to 0.43 percent, while swaps on Japanese government bonds, which provide an indication of where markets expect yields to end, fell from 0.91 percent to 0. 81 percent.

Hong Kong’s Hang Seng index rose 0.5 percent and China’s CSI 300 lost 0.2 percent.

The European Stoxx 600 added 0.2 percent, while the German Dax remained flat. The London FTSE 100 also traded in a tight range, slightly below a record high, as UK inflation slowed for the second month in a row, falling to 10.5% in December from a peak of 11.1% in October. Sterling gained 0.6 percent against the dollar to $1.24.

Prices for Brent crude, the international benchmark, rose 0.76 percent to $86.59 a barrel on Wednesday, with the International Energy Agency forecasting oil demand to hit a record high in 2023 when China reopens.