- Shares are sliding on bearish gains, economic data
- China is talking about incentives, but the economic damage has already been done
- The euro is near a 4-week high after Lagarde saw an increase in interest rates in July
NEW YORK / LONDON, May 24 (Reuters) – Shares fell globally on Tuesday as supply chain problems and rising costs hurt corporate profits and slowed production, while government bond yields declined as the weakness of the stock revived a safe haven for US sovereign debt.
Business activity in the US and the euro area slowed in May, with S&P Global attributing the decline in its compiled PMI in the US to “increased inflationary pressures, further deterioration in delivery times and weaker demand growth”.
Higher costs than rising commodity and commodity prices have prompted Abercrombie & Fitch Co. (ANF.N) to say it will continue to face winds until at least the end of the year, a day after Snap Inc (SNAP.N), the mother on Snapchat, said the US economy had deteriorated faster than expected in April. Read more
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The two-day easing of shares was dampened as investors noted declining corporate profits due to persistent supply chain problems worsened by the war in Ukraine and rising inflation, which forced consumers to reduce discretionary spending.
The US economy is likely to face a sharp slowdown as the Federal Reserve raises interest rates to curb inflation, according to David Petrosinelli, a senior trader at InspereX.
“It’s really all about a hard landing, and the Fed is really locked in a corner with only search tools to help,” Petrosinelli said. “They really need to crush demand.
“This will have a ripple effect on the economy, which is why you see the movement of prices in stocks and bonds,” he said.
MSCI’s worldwide stock (.MIWD00000PUS) fell 1.69%, while the pan-European STOXX 600 index (.STOXX) lost 0.99%.
On Wall Street, the Dow Jones Industrial Average (.DJI) fell 1.37%, the Nasdaq Composite (.IXIC) fell 3.33% and the S&P 500 (.SPX) lost 2.16%, while reverting to bear market.
Shares of Snap fell 41.1%, pulling down several shares on social media and the Internet, while Abercrombie fell 29%.
In Europe, utilities (.SX6P) and commodity-related stocks (.SXPP), (.SXEP) declined, but bank stocks rose.
The head of the European Central Bank, Christine Lagarde, said she saw the interest rate on ECB deposits at zero or “slightly above” by the end of September, suggesting an increase of at least 50 basis points from its current level.
The comments came a day after Lagarde accelerated a change in policy that made her go for it, but did not rule out the possibility of moving to pencil driving this year in several campaigns.
“This has raised concerns in world markets about the possibility of at least a more aggressive move by the ECB,” said Phil Shaw, chief economist at Investec in London.
“There were reports at night that some hawks on the board thought yesterday’s comments seemed to rule out a 50 basis point increase, but her remarks today seem to leave that on the table,” he said.
The yield on the German 10-year Bund fell 7.3 basis points to 0.951%.
The yield on government bonds fell to a one-month low, as those on the benchmark 10-year government bonds fell 13 basis points to 2.729%.
The dollar index fell 0.343% and the euro rose 0.38% to $ 1.073.
Lagarde’s comments in a blog post Monday and the fluctuations that brought the US currency to two-decade highs exacerbated the dollar’s tactical weakness, said Bipan Rai, head of FIB strategy for North America at CIBC Capital Markets.
“The broader macro background still supports risk-taking,” Rai said. “The dollar still has more room to manage in the medium term.”
DISAPPOINTING DATA
Markets were comforted by US President Joe Biden’s comment Monday that he was considering easing tariffs on China, and by Beijing’s continued promises of incentives. Read more
Unfortunately, China’s zero-COVID-19 policy and its blockades have already caused significant economic damage.
JPMorgan cut its second-quarter gross domestic product forecast to -5.4% from a previous -1.5% after disappointing data in April. On an annual basis, its global forecast for the quarter is 0.6%, the weakest of the major financial crisis outside 2020.
US crude recently fell 0.05% to $ 110.23 a barrel, while Brent was down $ 113.76, up 0.3% for the day.
Spot gold added 0.8% to $ 1,867.57 an ounce.
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Report by Herbert Lash in New York and Lawrence White in London; additional reports from Wayne Cole in Sydney; edited by Simon Cameron-Moore and Jonathan Oatis
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