Stocks weighed down by growth worries, US dollar climbs

  • Stocks fall as fear of inflation fuels uncertainty
  • UK inflation hits 9%, Canada rises to 6.8%
  • German 2-year yield at 2011 high on ECB rate hike bets

NEW YORK, May 18 (Reuters) – Global stocks plunged and the dollar strengthened for the first time in four sessions on Wednesday as worries about rising inflation on economic growth eroded sentiment.

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

UK inflation hit its highest annual rate since 1982 as energy bills soared, while Canadian inflation hit 6.8% last month, largely due to rising food and housing prices, according to Statistics Canada data. Read more

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Britain’s inflation is now the highest among Europe’s major economies, but prices are rising rapidly around the world, forcing central banks around the world to raise interest rates and curb growth, as suggested a slight decline in housing construction in the United States in April. Read more

Soaring prices and material shortages have already hit residential construction, the most rate-sensitive sector of the economy. But the U.S. Commerce Department report also showed a record backlog of homes to be built, indicating that a decline in home construction could potentially be marginal.

Adding to the inflation gloom, earnings results from Target Corp (TGT.N), whose quarterly profit halved as it warned of a bigger margin hit this year due to the rising fuel and freight costs. Read more

Target shares fell 24.88%, their biggest single-day percentage drop since the “Black Monday” stock market crash on October 19, 1987, a day after Walmart Inc (WMT.N) warned against similar margin squeezes and saw its shares fall 11.4. % for its biggest 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 market structure and proprietary trader at Bright Trading LLC in Las Vegas. “Now that Target is missing out on earning a lot more than Walmart, they’re afraid the consumer isn’t as strong as everyone thinks.”

The MSCI gauge of stocks across the world (.MIWD00000PUS) lost 2.74%, while in Europe, the pan-regional STOXX 600 index (.STOXX) closed down 1.14%.

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

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

Few analysts are ready to predict the end of the sell-off after the first five months of the year were lethal for risk assets given the scale of macro uncertainty, with many anticipating that market volatility will be the norm for some time.

The U.S. dollar gained ground as the sale of risky assets boosted the safe-haven appeal of the greenback, which was on course to break a three-game losing streak, a day after the president of the Fed, Jerome Powell, promised that the US central bank would raise rates as high as needed to fight rising inflation.

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

Treasury yields fell, although a steep trajectory for rates remained the market consensus as the benchmark 10-year bond yield hit 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 weak US housing starts.

The yield on two-year German government bonds climbed to 0.444%, its highest level since November 2011 after more hawkish comments from the central bank, and last rose 1.6 basis points to 0.386%. Klaas Knot of the European Central Bank said on Tuesday that a 50 basis point rate hike in July was possible if inflation rose.

Gold prices were little changed despite the risk aversion environment as impending US interest rate hikes and a resurgence in the dollar dulled the metal’s luster.

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

Oil prices plunged in volatile trade, reversing early gains as traders worried less about a supply shortage after government data showed U.S. refiners ramped up production. Read more

U.S. crude was down 2.5% at $109.59 a barrel and Brent at $109.11, down 2.52% on the day.

MSCI Global Equity Index
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Reporting by Herbert Lash and Chuck Mikolajczak; additional reporting by Devik Jain in Bengaluru; edited by Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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