Bond markets rallied in the search for safety and on bets that interest rate hikes could be recalibrated, but it was gloom that hit stocks after retailer shares lost $25 billion. American Target Wednesday which dominated the action. [.N]
Europe opened 1.8% lower, dragged down by a 2.2% drop in its retail sector [.EU]while scarlet-red US futures and Chinese tech firms’ steep overnight declines [.SS] brought the 1.5 year lows back into the crosshairs of the all-country MSCI.
“Target and Walmart coming out with disappointing numbers really, really scared people off,” said Robert Alster, chief investment officer of Close Brothers Asset Management.
“We’re going to see a series of downward revisions to the US GDP (forecast) now…it really does look like we’re facing a faster-than-expected slowdown.”
The S&P 500 was down 4% on Wednesday while the Nasdaq fell nearly 5% [.N]with interest rate sensitive megacaps Amazon, Nvidia and Tesla falling nearly 7% and Apple 5.6%.
MSCI’s broadest index of non-Japan Asia-Pacific stocks then snapped four days of gains falling 1.8%, led by a 1.65% loss for the resource-rich Australian index, a 2.5% drop in Hong Kong. The Tokyo Nikkei also lost 1.9%.
Hong Kong-priced technology gloves were particularly hard hit, with the index falling nearly 4%. Chinese e-commerce giant Tencent plunged more than 6% after reporting a lack of revenue growth in the first quarter, its worst performance since going public in 2004.
China’s tech sector is still reeling from a year of government repression and a slowing economic outlook stemming from Beijing’s strict zero COVID policy, even as Vice Premier Liu He’s soothing comments to tech executives supported the sentiment on Wednesday.
CENTRAL FOCUS
The focus has remained on what central banks will do now as they walk a tightrope trying to regain control of inflation, which is now reaching 40-year highs in some countries, without causing painful recessions.
Two US central bankers said they expected the Federal Reserve to move to a more measured pace of policy tightening after July, but in Europe markets suddenly priced up to four ECB hikes. It hasn’t raised its interest rates for a decade.
However, if things have not reached the point of no return, they seem to be heading towards an “out of control” situation. This is probably the most worrying part for the market,” said Hebe Chen, market analyst at IG.
In the currency market, the US dollar fell 0.3% against a basket of major currencies, after jumping 0.55% overnight that ended a three-day streak of losses.
The euro gained 0.4% ahead of an ECB rate hike, while the Australian dollar gained 0.8% and the New Zealand kiwi rebounded 0.6%, helping by an easing of Shanghai’s COVID shutdown in China. [FRX/]
US Treasuries rallied overnight and shone 2.84% in Europe, where the risk-averse mood also saw the yield on German 10-year bonds – which move inversely to price – fall back below the closely monitored level of 1%. [GVD/EUR]
Inflation worriers also saw oil prices fall again, with fears of slowing economic growth outweighing lingering fears of limited global supply.
Brent crude oil fell from $110.41 to $108.25 a barrel in London exchanges, while US crude oil fell to $108.78 a barrel and gold, which fell more than 12% since March, has risen $1,822 an ounce. [GOL/]