Dollar Rises, Stocks Fall As Inflation Tensions Return

NEW YORK/LONDON (Reuters) – The dollar strengthened and global stocks fell on Wednesday as concerns about economic growth and rising inflation soured sentiment as British consumer prices rose 9% and prices accelerated more than expected. 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

UK inflation is now the highest among major economies but prices are rising rapidly across the world, forcing central banks to raise interest rates despite the potential impact on growth as suggested by a modest drop in US home construction 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 may be marginal.

Adding to the gloom caused by high inflation were Target Corp.’s earnings results (TGT.N)which halved its quarterly profit as it warned of a larger margin this year due to rising fuel and freight costs. Read more

Target stocks fell 24% on the day after Walmart (WMT.N) Warned of similar margin pressures.

“The market is still trending lower this summer for reasons we’re seeing with the big retailers. We still have an inflation problem,” said Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management.

By the end of the year, the S&P 500 will be closer to 5,000 from 4,000, he said, but “we haven’t gone through the hard part yet because the Fed only raised rates by 75 basis points. They have more to go and when it tapers, the tide is on risky assets.”

MSCI’s benchmark for stocks worldwide (.MIWD00000PUS) The Stoxx 600 index in Europe fell 1.55% (.stoxx) It lost 0.71%.

On Wall Street, the Dow Jones Industrial Average (.DJI) The S&P 500 is down 2.14%. (.SPX) The Nasdaq Composite lost 2.42% (nineteenth) It decreased 2.55%.

Few analysts are willing to predict the end of selling after the risky first five months of the year for risky assets given so much macroeconomic uncertainty.

“Investor sentiment and confidence remain shaken, and as a result, we are likely to see choppy and volatile markets until we have more clarity on the 3Rs – rates, stagnation and risks,” said Mark Heffel, chief investment officer at UBS Global. Wealth management.

The US dollar rose, on course to lose three consecutive sessions, a day after Federal Reserve Chairman Jerome Powell pledged that the US central bank would raise interest rates as high as needed to combat rising inflation.

The dollar index rose 0.3 percent, with the euro falling 0.46 percent to $1.0498. The Japanese yen strengthened 0.76% to 128.41 per dollar.

Treasury yields fell. The steep trajectory of rates remains the prevailing market consensus as the 10-year yield hit a one-week high of 3.015% after Powell’s hawkish comments.

The yield fell 4.4 basis points to 2.926% on Wednesday after a weak US housing starts number.

The yield on German two-year government bonds jumped to its highest level since December 2011 after more hawkish comments from the central bank. 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 were little changed as US interest rate hikes loom and the dollar’s return to the metal’s brilliance.

Spot gold rose 0.1% to $1,815.70 an ounce.

Oil prices fell in choppy trading as markets weighed on expectations that China would ease COVID-19 restrictions in exchange for an unexpected drop in US crude stocks as refiners processed more crude. Read more

US crude fell 1.54 percent to $110.67 a barrel, and Brent crude closed at $110.28, down 1.47 percent on the day.

MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It rose 0.68% and is in its longest winning streak since February. Japan’s Nikkei Index (.N225) It rose 0.94% and miners led Australian shares (.AXJO) About 1% higher.

MSCI World Stock Index (.MIWD00000PUS) A slight 0.1% is up about 2% so far this week, but still 16% down from its January peak.

Data on Wednesday showed the Japanese economy contracted less than expected in the first quarter. Read more

Additional reporting by Herbert Lash and Tommy Wilkes in London, Tom Westbrook in Singapore; Editing by William MacLean and Emilia Sithole Mataris

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