Stocks fall on inflation fears, Treasury yields jump

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  • Inflation fears fuel negative investor sentiment
  • Dollar recovers from fall, British pound slides despite BoE rise

NEW YORK, May 5 (Reuters) – U.S. Treasury yields jumped and global stock markets tumbled on Thursday, erasing the previous day’s rally on Wall Street, as investors feared aggressive central bank policies around the world aimed at curbing inflation is unlikely to hamper growth.

The Wall Street rout stifled a rally in European stocks as fears of a recession, as suggested by the Bank of England after raising rates, crushed the enthusiasm of the Federal Reserve Chairman’s remarks Jerome Powell Wednesday. He said policymakers were not considering 75 basis point moves going forward. Read more

The yield on 10-year Treasury bills rose 14.7 basis points to 3.062%. But inflation-hedging gold rose as Powell also pointed to the risks to the economy from soaring inflation.

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“It’s a very messy environment for investors right now,” said Anthony Saglimbene, global market strategist at Ameriprise Financial. “There is an overall negative sentiment in the market.”

Markets will remain volatile until there is a clear picture of Fed rate policy and its trajectory later this year, he said.

Investors “fear that when we get to the second half of this year, the Fed will be so aggressive with raising interest rates that it’s going to drag the economy into a recession.”

Concerns about rapid rate hikes at a time when China’s COVID shutdowns and Ukraine’s war to slow soaring inflation have weighed heavily on equity markets this year.

The MSCI gauge of stocks across the world (.MIWD00000PUS) lost 2.65% and the pan-European STOXX 600 index (.STOXX) closed down 0.70%, after opening up 1.84% .

On Wall Street, the Dow Jones Industrial Average (.DJI) fell 3.33%, the S&P 500 (.SPX) lost 3.65% and the Nasdaq Composite (.IXIC) fell 5.05%.

The British pound and government bond yields fell sharply after the BoE raised rates to their highest level since 2009 to counter inflation above 10% and warned that the UK economy was at risk of experience a recession. Read more

The pound was last at $1.2346, down 2.18% on the day, while the euro fell 1.01% to $1.0514 after disastrous German industrial orders data on Thursday. Read more

German industrial orders fell more than expected in March, mainly due to falling orders from abroad as the war in Ukraine hit manufacturing demand in Europe’s largest economy.

“The German economy is set for a slowdown,” said Thomas Gitzel, chief economist at VP Bank.

“The war in Ukraine, supply chain problems and high inflation rates are spoiling companies’ appetite for investment,” he said, adding that a recession was becoming increasingly likely. .

The dollar index rose 1.18% after falling sharply on Wednesday following the Fed’s rate hike. It is up more than 7% since the start of the year. /FRX

Global stocks lose $10 trillion in 2022

China’s battered stocks recovered some ground, gaining 0.7% (.SSEC) as mainland markets resumed trading after a three-day holiday.

Investors also applauded China’s central bank’s pledge to bolster monetary policy support to help businesses hit hard by the latest COVID-19 outbreak. Read more

US gold futures stabilized 0.4% at $1,875.70 an ounce, after gains of more than 2%.

Oil prices rose as a stronger dollar offset supply concerns after European Union plans for new sanctions on Russia, including a crude embargo in six months. Traders noted that OPEC+ had again pushed back on consumer calls for a faster pace to increase production.

U.S. crude futures rose 45 cents to $108.26 a barrel and Brent rose 76 cents to $110.90 a barrel.

Rate hikes drive up global borrowing costs
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Reporting by Herbert Lash, additional reporting by Marc Jones in London; edited by Susan Fenton and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

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