Stocks, Bonds Fall on Debt-Limit, Inflation Fears: Markets Wrap
(Bloomberg) — A deluge of bad news swept across global markets on Wednesday, driving European stocks to the biggest loss in two months, pushing copper below $8,000 and snuffing out this year’s gains in China equities.
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There were reasons for investors to be pessimistic in every region. In the US, there was little progress in debt-ceiling talks and investors are increasingly worried about a default. China’s sputtering economy and worsening geopolitical ties also hurt sentiment, and UK inflation came in higher than any economist prediction.
Luxury stocks, one of this year’s most popular trades, extended losses, with LVMH and Gucci owner Kering SA sliding about 2%. European real estate and carmakers slumped on concern that UK interest rates are heading higher. Nvidia Corp., a stock at the center of the artificial intelligence frenzy, lost almost 1%.
“Right now we’re defensively positioned,” said Janet Mui, head of market analysis at RBC Brewin Dolphin, in an interview on Bloomberg TV. “We expect a US recession. We have pushed back the date of that recession to 2024 but we think it’s inevitable. Interest rates will stay high in the US, contrary to what the market is currently pricing, so I think that is negative for the economy and corporate profits. This will drive equity markets lower.”
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US futures dipped, signaling the S&P 500 will extend yesterday’s 1.1% retreat. Treasuries hovered around current levels and investors are continuing to demand a premium to hold US debt, especially those at the highest risk of default. Yields on securities maturing June 6 topped 6% Tuesday, compared with bills maturing May 30 that are yielding about 2%.
The two-year Treasury yield edged lower after eight straight days of gains, while the 10-year yield was flat.
In Europe, the hot inflation print dashed any expectation that the Bank of England would pause on interest rates. Money markets are now pricing in a peak BOE rate as high as 5.5%, suggesting a full percentage point of hikes through the end of the year.
The Stoxx 600 Index lost 1.7%, the biggest intraday loss since March 24. Gilts slid, lifting the yield on the 10-year note was up five basis points at 4.21%.
“Inflation continues to dominate – from boardrooms to shop floors – especially after stickier than expected UK inflation cemented bets of more BoE rate hikes ahead,” said Angeline Ong, a financial analyst at IG Group.
On the commodities front, metals were broadly lower. A new wave of Covid is threatening to set back the country’s economy, and investors have been rattled by Beijing’s move to ban purchases of Micron Technology Inc.’s products.
Copper’s demand weakness is evident in inventories held by the London Metal Exchange, which have almost doubled since mid-April. China’s benchmark stock index, the CSI 300 Index, closed down 1.4% Wednesday and the benchmark is among the worst performers in Asia this year.
The New Zealand dollar dropped as much as 1.3% after the central bank unexpectedly signaled that no further policy tightening will be needed. Policymakers hiked interest rates to 5.5%, in line with projections.
Key events this week:
Fed issues minutes of May 2-3 policy meeting, Wednesday
Bank of England Governor Andrew Bailey speaks, Wednesday
US initial jobless claims, GDP, Thursday
Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
Tokyo CPI, Friday
US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
S&P 500 futures fell 0.4% as of 6:50 a.m. New York time
Nasdaq 100 futures fell 0.4%
Futures on the Dow Jones Industrial Average fell 0.4%
The Stoxx Europe 600 fell 1.7%
The MSCI World index fell 0.5%
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.1% to $1.0754
The British pound fell 0.3% to $1.2373
The Japanese yen was little changed at 138.49 per dollar
Bitcoin fell 1.8% to $26,721.11
Ether fell 2.1% to $1,815.78
The yield on 10-year Treasuries declined one basis point to 3.68%
Germany’s 10-year yield declined four basis points to 2.43%
Britain’s 10-year yield advanced five basis points to 4.21%
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Ruth Carson and Anchalee Worrachate.
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