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Opening Call:
Europe faces more losses early Thursday following the worst daily slide for the Dow and S&P 500 since June 2020, as concerns grow about a global recession. Asian shares suffered broad losses too, tracking Wall Street’s retreat; the dollar and gold dipped; Treasury yields and oil gained
Equities:
Losses will likely continue for European stocks Thursday after stagflation fears sent U.S. stocks crashing.
The Dow and S&P 500 booked their worst daily falls in about two years Wednesday, after quarterly retailer results confirmed higher costs for fuel and wages were eating into profits, and as Treasury Secretary Janet Yellen warned of global stagflation taking root.
Read: High Inflation, Slowing Growth Raise Risk of Global Downturn
The Dow skidded almost 1,200 points, while the S&P 500 closed down 4%.
Selling hit the consumer sectors hardest, with Target shares tumbling 25% after the retailer reported earnings that fell far short of expectations. But tech, energy and other swaths of the market also were swept up.
“Obviously, the pressures we are seeing are from Target, following Walmart, in acknowledging price pressures,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.
“I think that people involved in the market are now going to be even more concerned with inflation, and the pressures that it brings to things like margins. But sometimes, it’s also run for the hills and ask questions later.”
Pavlik also said there wasn’t much conviction in the market. “As someone who might be willing to do some buying of quality companies, why should I step in now, when prices are likely still going to go down?”
Economic Insight:
The Federal Reserve Bank of New York said it was tracking stress in global supply chains via a new proprietary index. Its Global Supply Chain Pressure Index “can be used to gauge the importance of supply constraints with respect to economic conditions, and how those constraints evolve over time.”
In its April reading, it found rising supply-chain pressure, at a reading of 3.29, compared with March’s 2.80. The index goes back to 1997, and the highest reading was hit in December at a reading of 4.45. The bank said April’s reading rose on China and Europe related factors, adding, “looking ahead, we note the potential for heightened geopolitical tensions to stoke supply chain pressures in the near term.”
Forex:
The dollar fell around 0.1% against a basket of currencies in Asia in a possible technical move following its recent gains. MUFG Bank said stagflation fears are likely to dominate and keep the USD Index well-supported.
The Federal Reserve will continue to raise interest rates at a measured pace until policymakers are confident that inflation is moving down toward the 2% annual rate goal, said Philadelphia President Patrick Harker Wednesday.
Harker endorsed the Fed’s plan for two additional 50-basis-point rate hikes in June and July as long as there are no significant changes in the data in the coming weeks.
“After that, I anticipate a sequence of increases in the funds rate at a measured pace until we are confident that inflation is moving toward the FOMC’s inflation target,” Harker said. All of this will be dependent on where the data is, he said.
Read more here.
Other News:
North Korea-linked hackers have pilfered about $800 million worth of cryptocurrency from decentralized financial platforms this year, according to blockchain analytics firm Chainalysis, already doubling the amount they stole in 2021.
UN investigators have alleged that Pyongyang uses such stolen digital assets to help fund its nuclear missile program. North Korea’s 2022 crypto haul stems in large part from a March hack of online game “Axie Infinity,” one of the most popular crypto-based computer applications.
U.S. officials last month urged developers and investors in such projects to shore up their defensive measures in the hope of thwarting future heists.
Bonds:
Treasury yields were back on the rise early Thursday after they fell across the board Wednesday.
Renewed hawkishness by Jerome Powell had been a tailwind for yields, but inflation and low-growth concerns seemed to push investors back to bonds Wednesday.
“More than ever, evidence of peak inflation may be needed for a sustained market recovery,” said asset manager Louis Navellier. “Volatility clearly remains high but pessimism is not spiking.”
Wells Fargo Investment Institute said its base case for the U.S. economy is for a “mild” contraction.
“The economy might manage through any one of the inflation or policy shocks, but the rapid convergence of multiple shocks has reached a point where we expect a contraction in U.S. GDP growth for a few quarters, starting later this year and carrying into the second quarter of 2023.”
Energy:
Crude futures added more than 1% in Asian trading, reversing earlier losses in a likely technical rebound.
Oil turned lower Wednesday despite data showing an unexpected drop in U.S. inventories and a further, sharp fall in gasoline supplies. The reversal came as an equity market rout dulled sentiment across asset markets perceived as risky.
“It is a very volatile market, but there are enough reasons to suggest why traders are seeking to sell in the current environment,” wrote SPI Asset Management, pointing to the possibility of Venezuela’s oil coming to the market.
Crude has been pushing the upper end of its trading range over the past few weeks, wrote Ole Hansen, head of commodity strategy at Saxo Bank.
“The combination of refinery maintenance, a post pandemic reduction in capacity as well as self-sanctioning of Russian products have all led to incredible tight markets.”
Metals:
Gold futures dipped further into the red, extending Wednesday’s mild losses.
Bullion prices didn’t break after the carnage on Wall Street, which suggests some investors are fleeing to gold for safety, wrote OANDA’S Edward Moya.
If gold can distance itself from the $1,800 level, technical buying could help send prices to $1,850, Moya added.
—
Copper prices were little changed despite the risk-off tone across Asian markets, with Jerome Powell’s hawkish remarks on Tuesday continuing to weigh on sentiment.
Iron ore futures were down 1% in China. Goldman Sachs said inventories are expected to remain high even after a phase of drawdowns, and supply is expected to remain strong into the second half.
TODAY’S TOP HEADLINES
High Inflation, Slowing Growth Raise Risk of Global Downturn
The global economy is in danger of entering a period of so-called stagflation, or high inflation and weak growth, policy makers and corporate leaders say, which could erode living standards around the world.
Treasury Secretary Janet Yellen on Wednesday became the latest leader to warn of turbulence for the global economy. “Certainly the economic outlook globally is challenging and uncertain,” Ms. Yellen said in Bonn, Germany, ahead of a meeting of leaders of seven wealthy nations. “Higher food and energy prices are having stagflationary effects, namely, depressing output and spending and raising inflation all around the world.”
Fed’s Patrick Harker Supports Half-Point Rate Rises in June and July
Federal Reserve Bank of Philadelphia leader Patrick Harker said he supports the central bank doing more big rate increases at its coming meetings as it seeks to lower inflation.
“If there are no significant changes in the data in the coming weeks, I expect two additional 50-basis-point rate hikes in June and July,” Mr. Harker said Wednesday in a speech text. “After that, I anticipate a sequence of increases in the funds rate at a measured pace until we are confident that inflation is moving toward the [Federal Open Market] Committee’s inflation target.”
More Crypto Market Turmoil Is Predicted by SEC Chairman Gary Gensler
WASHINGTON-Securities and Exchange Commission Chairman Gary Gensler said Wednesday he worries that more investors will be harmed in cryptocurrency markets, after this month’s implosion of the stablecoin known as TerraUSD.
“I think a lot of these tokens will fail,” Mr. Gensler told reporters after a House Appropriations Committee panel hearing Wednesday. “I fear that in crypto…there’s going to be a lot of people hurt, and that will undermine some of the confidence in markets and trust in markets writ large.”
CFTC Signals Intent to Increase Enforcement of Crypto-Related Cases
NEW YORK-The number of cases of alleged digital asset fraud and manipulation continues to accelerate, the head of the Commodity Futures Trading Commission said.
“Headlines about the loss of tens of millions of dollars in digital assets due to protocol exploits, phishing attacks, preying on vulnerable people and other fraudulent and manipulative schemes have become far too common,” CFTC Chairman Rostin Behnam said Wednesday in a video message delivered at a crypto industry conference in New York.
Melvin Capital to Close Funds, Return Cash to Investors
Melvin Capital plans to close its funds and return the cash to its investors, capping a stunning reversal for a firm that lost big on the surge in meme stocks last year and on wagers on growth stocks this year.
In a letter to investors that was reviewed by The Wall Street Journal, Gabe Plotkin, Melvin’s founder, wrote that he reached his decision after conferring with Melvin’s board of directors during a monthslong process of reassessing his business.
(MORE TO FOLLOW) Dow Jones Newswires
May 19, 2022 00:28 ET (04:28 GMT)
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