Stocks tumble on growth worries, bond yields fall

  • Stocks slide on bearish earnings and economic data
  • China talks about stimulus, but the economic damage is already done
  • Euro close to 4-week high as Lagarde announces July rate hike

NEW YORK/LONDON, May 24 (Reuters) – Stocks fell around the world on Tuesday as supply chain issues and soaring costs hurt corporate profits and manufacturing output slowed, while as Treasury yields fell as weakness in equities rekindled a safe-haven bid for US government debt.

A two-day rally in stocks ended as investors took note of profit margins squeezed by supply problems aggravated by war in Ukraine and soaring inflation that forced consumers to cut spending discretionary.

Business activity in the United States and the euro zone slowed in May, with S&P Global attributing the drop in its U.S. composite PMI output to “elevated inflationary pressures, further deterioration in supplier delivery times and a lower demand growth.

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Rising costs from soaring freight and raw material prices have led Abercrombie & Fitch Co to say it will continue to face headwinds until at least the end of the month. year, a day after Snapchat parent Snap Inc said the U.S. economy worsened faster than expected in April. Read more

The economy will likely slow very sharply as the Federal Reserve raises interest rates to stamp out inflation, said David Petrosinelli, senior trader at InspereX.

“This is really a hard landing and the Fed is really stuck in the corner with only demand-side tools to help,” he said. “They really need to crush demand.”

The MSCI gauge of stocks across the world (.MIWD00000PUS) lost 1.46%, while the pan-European STOXX 600 index (.STOXX) closed down 1.14%.

On Wall Street, the Dow Jones Industrial Average (.DJI) fell 0.63%, the Nasdaq Composite (.IXIC) fell 3.24% and the S&P 500 (.SPX) lost 1.67% as that it was heading for a bear market again.

Value stocks fell 0.63%, much less than the 2.81% drop in growth stocks (.IGX).

Shares of Snap fell 42.4%, dragging down several social media and internet stocks, while Abercrombie fell 30.8%.

In Europe, all major sectors posted large declines, with luxury stocks and retailers taking the lead as consumer disposable income is squeezed.

European Central Bank chief Christine Lagarde said she sees the ECB’s deposit rate at zero or “slightly above” by the end of September, implying an increase of at least 50%. basis points from its current level as the bank also prepares to fight inflation.

“This has raised concerns in global 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 overnight that some board hawks thought his comments yesterday seemed to rule out a 50bp hike, but his remarks today seemed to leave that on the back burner. table,” he said.

The yield on the 10-year German Bund fell 9 basis points to 0.959%.

Treasury yields fell to one-month lows, with those on benchmark 10-year Treasuries falling 10.3 basis points to 2.756%.

The dollar index fell 0.264%, with the euro up 0.29% at $1.072.

Lagarde’s comments in a Monday blog post and a swing that pushed the U.S. currency to two-decade highs reinforced the dollar’s tactical weakness, said Bipan Rai, head of North America FX strategy at CIBC Capital Markets. .

“The broader macro backdrop still supports risk taking,” Rai said. “The dollar still has more room to maneuver in the medium term.”

DISAPPOINTING DATA

Markets were reassured by US President Joe Biden’s comment on Monday that he was considering easing tariffs on China, and Beijing’s continued stimulus promises. Read more

Yet China’s zero COVID-19 policy and its lockdowns have already caused massive economic damage.

JPMorgan cut its forecast for China’s second-quarter gross domestic product to a 5.4% contraction from a previous decline of 1.5% after disappointing data in April. On an annualized basis, its global forecast for the quarter is 0.6%, the weakest since the global financial crisis outside of 2020.

Oil prices were little changed as concerns over tight supply offset worries about a possible recession and COVID-19 curbs in China.

U.S. crude futures fell 52 cents to $109.77 a barrel and Brent rose 14 cents to settle at $113.56.

Gold prices hit a two-week high as the appeal of the safe-haven metal was boosted by a weaker US dollar and lower Treasury yields, amid weak risk appetite on stocks. financial markets.

US gold futures gained nearly 1% to $1,865.40 an ounce.

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Reporting by Herbert Lash in New York and Lawrence White in London; additional reporting by Wayne Cole in Sydney; edited by Simon Cameron-Moore, Jonathan Oatis and Tomasz Janowski

Our standards: The Thomson Reuters Trust Principles.

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