Stocks fell on growth fears, and the US dollar rose

  • Stocks fall as fear of inflation drives uncertainty
  • Inflation in the UK is up to 9% and in Canada it is up to 6.8%
  • Germany’s two-year yield hit its highest level in 2011 on the back of the European Central Bank’s interest rate hike bets

NEW YORK (Reuters) – Global stocks fell and the dollar rose for the first time in four sessions on Wednesday, as economic growth fears that inflation will soar, denting sentiment.

The mood was underlined by a 9% rise in UK consumer prices and faster-than-expected inflation in Canada.

British inflation climbed to its highest annual rate since 1982 as energy bills soared, while Canadian inflation surged to 6.8% last month, driven largely by higher food and shelter prices, Statistics Canada data showed. Read more

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British inflation is now the highest among major economies in Europe, but prices are rising rapidly around the world, forcing central banks around the world to raise interest rates and curb growth as suggested by a modest drop in US homebuilding in April. Read more

High prices and material shortages have already affected home construction, the most rate-sensitive sector of the economy. But the US Commerce Department report also showed a record backlog of homes to be built, suggesting the decline in home construction is likely to be marginal.

To make matters worse due to inflation, earnings results for Target Corp. (TGT.N), whose quarterly profit halved as it warned of a larger margin achieved this year due to higher fuel and freight costs. Read more

Target stocks fell 24.88%, the largest one-day percentage drop since the “Black Monday” stock market crash of October 19, 1987, a day after Walmart (WMT.N) warned of similar margin pressures and its stock plunged 11.4% to the largest One-day percentage drop since October 16, 1987.

“It was Walmart yesterday and everyone thought it was a one-off,” said Dennis Dick, head of markets structure and proprietary trader at Bright Trading LLC in Las Vegas. “Now that Target has lost a lot more profit than Walmart did, they are afraid the consumer isn’t as strong as everyone thinks.”

The MSCI Worldwide Stock Index (.MIWD00000PUS) is down 2.74%, while in Europe, the STOXX 600 (.STOXX) index closed the region down 1.14%.

On Wall Street, the Dow Jones Industrial Average (.DJI) lost 3.56%, the S&P 500 (.SPX) lost 4.03%, and the Nasdaq Composite (.IXIC) lost 4.73%.

The declines in the S&P 500 and Dow posted the largest one-day percentage declines since June 11, 2020.

Few analysts are willing to predict the end of the sell-off after the first five months of the year for risky assets given the magnitude of the macroeconomic uncertainty, with many expecting market volatility to be the norm for some time.

The US dollar gained gains as the sell-off in risky assets boosted the dollar’s safe-haven appeal, which was on track to lose three consecutive sessions, a day after Federal Reserve Chairman Jerome Powell pledged that the US central bank would raise rates as high as needed to combat rising inflation.

The dollar index rose 0.581 percent, with the euro falling 0.8 percent to $1.0463. The Japanese yen strengthened 0.92% to 128.23 per dollar.

Treasury yields fell, although the steep trajectory of interest rates remained the dominant market consensus as the 10-year Treasury yield reached a one-week high of 3.015% after Powell’s hawkish comments.

The yield fell 8.1 basis points to 2.890% on Wednesday after a weak US housing starts number.

Germany’s two-year government bond yield jumped to 0.444%, its highest level since November 2011 after more hawkish central bank comments, and was most recently up 1.6 basis points at 0.386%. The European Central Bank’s Klaas Knott said on Tuesday that a 50 basis point rate hike in July was possible if inflation had widened.

Gold prices haven’t changed much despite a risk-off environment with looming US interest rate hikes and the dollar’s return to the metal’s brilliance.

Spot gold rose 0.1% to $1,816.06 an ounce.

Oil prices fell in choppy trading, reversing early gains as traders became less concerned about a supply crunch after government data showed that US refiners increased production. Read more

US crude closed down 2.5% at $109.59 a barrel and Brent crude settled at $109.11, down 2.52% on the day.

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(Reporting by Herbert Lash and Chuck Mikolajchak) Additional reporting by Davek Jain in Bengaluru; Editing by Jonathan Otis

Our Standards: Thomson Reuters Trust Principles.

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