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World stocks clamber off 18-month lows, but markets on recession watch

 

  • S&P futures up 1.13%, European stocks gain 0.96%
  • MSCI Asia ex-Japan +1.8%, Nikkei +2.64%
  • Worries over inflation, tightening policy remain
  • Dollar hovers near 20-year highs on safe-haven demand

LONDON/SHANGHAI, May 13 (Reuters) – World stocks rose from the previous day’s 18-month lows and the dollar pulled back from 20-year highs on Friday, though investors remained nervous about high inflation and the impact of rising interest rates.

Markets are becoming anxious about the possibility of recession, with the S&P getting close to a bear market on Thursday, at nearly 20% off its January all-time high.

In an interview late on Thursday, US Federal Reserve Chair Jerome Powell said the battle to control inflation would “include some pain.” Powell repeated his expectation of half-percentage-point interest rate rises at each of the Fed’s next two policy meetings, while pleading that “we’re prepared to do more.” read more

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The war in Ukraine has aggravated supply chain disruptions and inflationary pressures already in place after more than two years of the COVID-19 pandemic, but stocks enjoyed a bounce on Friday.

“There’s an awful lot of negative sentiment out there, we’re looking at a 40% chance of recession,” said Patrick Spencer, vice chairman of equities at Baird Investment Bank.

“A lot of fund managers have cut their equity allocations and raised cash, though we think this is a correction rather than a bear market.”

MSCI’s world equity index (.MIWD00000PUS) rose 0.32% after hitting its lowest since November 2020 on Thursday, though it was heading for a 4% fall on the week, its sixth straight week of losses.

S&P futures bounced 1.13% after the S&P index dropped 0.13% overnight, with the index also eyeing a sixth straight week of declines.

S&P 500 set for a sixth straight week of falls

European stocks (.STOXX) rallied 0.96% and Britain’s FTSE 100 (.FTSE) gained 1.17%.

The US dollar eased 0.22% to 104.54 against a basket of currencies, but remained close to 20-year highs due to safe haven demand.

Russia has bristled over Finland’s plan to apply for NATO membership, with Sweden potentially following suit.

Moscow called Finland’s announcement hostile and threatened retaliation, including unspecified “military-technical” measures. read more

The dollar rose 0.36% to 128.76 yen , while the euro gained 0.3% to $1.0408, recovering from Thursday’s five-year lows.

Cryptocurrency bitcoin also turned higher, cracking through $30,000 after the collapse of TerraUSD, a so-called stablecoin, drove it to a 16-month low of around $25,400 on Thursday. read more

“Some traders may see the sharp fall this month as an opportunity to buy the dip, but given the hugely volatile nature of the coins, the crypto house of cards could tumble further,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown .

The moves higher in equities were mirrored in US Treasuries, with the benchmark US 10-year yield edging up to 2.9221% from a close of 2.817% on Thursday.

The policy-sensitive 2-year yield was at 2.6006%, up from a close of 2.522%.

“Within the shape of the US Treasury curve we are not seeing any particularly fresh recession/slowdown signal, just the same consistent marked slowing earmarked for H2 2023,” Alan Ruskin, macro strategist at Deutsche Bank, said in a note.

German 10-year government bond yields edged up to 0.9250%.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was up almost 2% from Thursday’s 22-month closing low, trimming its losses for the week to less than 3%.

Australian shares (.AXJO) gained 1.93%, while Japan’s Nikkei stock index (.N225) jumped 2.64%.

In China, the blue-chip CSI300 index (.CSI300) was up 0.75% and Hong Kong’s Hang Seng (.HSI) rose 2.71%, encouraged by comments from Shangahi’s deputy mayor that the city may be able to start easing some tough COVID restrictions this month. read more

“We had some pretty big moves yesterday, and when you see those big moves it’s only natural to get some retracement, especially since it’s Friday heading into the weekend. There’s not really a new narrative that’s come through,” said Matt Simpson, senior market analyst at City Index.

Oil prices were higher against the backdrop of a pending European Union ban on Russian oil, but were still set for their first weekly loss in three weeks, hit by concerns about inflation and China’s lockdowns slowing global growth.

US crude rose 0.75% to $106.97 a barrel, and global benchmark Brent crude was up 1.05% at $108.58 per barrel.

Spot gold , which had been driven to a three-month low by the soaring dollar, was up 0.2% at $1,824.61 per ounce.

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Reporting by Andrew Galbraith; Editing by Simon Cameron-Moore, Lincoln Feast and Kim Coghill

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US labor market still tightening; producer price gains moderate

An “Apply Now” sign stands outside the new Faccia Brutta Bar Pallino looking to hire employees on Newbury Street in Boston, Massachusetts, US, April 27, 2022. REUTERS/Brian Snyder

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  • Weekly jobless claims increase from 1,000 to 203,000
  • Continuing claims drop 44,000 to 1.343 million
  • Producer prices rise 0.5% in April; up 11.0% year-on-year

WASHINGTON, May 12 (Reuters) – The number of Americans filing new claims for unemployment benefits unexpectedly rose last week, touching the highest level in three months, but there is no material shift in labor market conditions amid strong demand for workers.

The report from the Labor Department on Thursday also showed that the number of people on state unemployment rolls was the smallest in more than 52 years at the end of April. Companies, scrambling to fill record job openings, are increasing wages, contributing to keeping inflation elevated.

“There is no change in the underlying message of a very tight labor market and employers unwilling to lay off existing workers in the face of extreme labor scarcity,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

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Initial claims for state unemployment benefits increased 1,000 to a seasonally adjusted 203,000 for the week ended May 7, the highest level since mid-February. Data for the prior week was revised to show 2,000 more applications received than previously estimated. Economists polled by Reuters had forecast 195,000 applications for the latest week.

Claims have been largely treading water since hitting more than a 53-year low of 166,000 in March. Economists blamed the second straight weekly increase on residual volatility in the data around moving holidays like Easter, Passover and school spring breaks. Big rises in filings in California, Virginia and Illinois offset a decline of 9,811 in New York.

Jobless claims

There were a record 11.5 million job openings on the last day of March, and nonfarm payrolls rose by 428,000 in April, the 12th straight month of employment gains in excess of 400,000. Claims have dropped from an all-time high of 6,137 million in early April 2020.

The number of people receiving benefits after an initial week of aid dropped 44,000 to 1.343 million during the week ending April 30. That was the lowest level for the so-called continuing claims since January 1970.

Stocks on Wall Street were trading mixed while the dollar rose against a basket of currencies. US Treasury prices climbed.

LONG ROAD TO LOW INFLATION

The Federal Reserve last week raised its policy interest rate by half a percentage point, the biggest hike in 22 years, and said it would begin trimming its bond holdings next month.

The US central bank, which started raising rates in March, hopes to bring the demand and supply of labor back in alignment, and cool wages and inflation, while avoiding high unemployment as well as an abrupt economic slowdown or recession.

While inflation remains above the Fed’s 2% target, there are encouraging signs it has probably peaked, at least when measured on an annual basis. Last year’s high inflation readings are dropping out of the calculation of annual inflation rates.

In another report on Thursday, the Labor Department said the producer price index for final demand rose 0.5% in April as gains in energy products slowed. That marked a sharp deceleration from March, when the PPI surged 1.6%. April’s increase was in line with economists’ expectations.

Energy prices rose 1.7% after shooting up 6.4% in March. Food prices climbed 1.5%. As a result, goods prices advanced 1.3% after jumping 2.4% in March. The cost of services was unchanged after vaulting 1.2% in March. But energy prices have since accelerated while demand is reverting back to services from goods, which suggests the monthly PPI will pick up in May.

In the 12 months through April, the PPI increased 11.0% after accelerating 11.5% in March.

“While inflation is still looking strong, there are some signs that we may have moved past peak rates,” said Daniel Silver, an economist at JPMorgan in New York.

The slowdown in monthly producer price gains follows a similar trend in consumer prices last month. Data on Wednesday showed that consumer prices logged their smallest rise in eight months in April. The annual increase in consumer prices also slowed down for the first time since last August. read more

Producer prices excluding food, energy and trade services climbed 0.6% in April after rising 0.9% in March. In the 12 months through April, the so-called core PPI rose 6.9% after accelerating 7.1% in March. The rise in underlying producer prices followed a similar trend with the core CPI.

inflation

But components which go into the core personal consumption expenditures (PCE) price index, one of the key inflation measures closely watched by Fed officials, were weak last month. Portfolio management fees dropped for a third straight month because of the stock market sell-off.

The cost of hospital inpatient care and doctor services fell, due to a reduction in Medicare payments to providers starting in April.

Used motor vehicle prices were flat. While airline fares rose, they did not match the record increase in the CPI report.

Based on the CPI and PPI data, economists are estimating that the core price index rose by about 0.2% in April after advancing by 0.3% for two straight months. That would slow the year-on-year increase to 4.7% from 5.2% in March.

“Still, modestly softer PCE inflation is unlikely to alter the near-term path of Fed policy, and we continue to expect 50-basis-point rate hikes at each of the next three meetings,” said Veronica Clark, an economist at Citigroup in New York.

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Reporting by Lucia Mutikani; Editing by Andrea Ricci, Chizu Nomiyama and Paul Simao

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Stocks in a tailspin, dollar soars as hard landing fears grow

A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai, India, February 1, 2020. REUTERS/Francis Mascarenhas

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  • World stocks drop to 1-1/2 yr low, down almost 20% YTD
  • Europe opens down 2% US equity futures struggle
  • Dollar hits 2yr highs on AUD, NZD
  • Bitcoin tumbling, hits new 16-month low
  • Copper buckles to lowest since October

LONDON, May 12 (Reuters) – Shares sank to a 1-1/2 year low on Thursday and the dollar hit its highest in two decades, as fears grew that fast-rising inflation will drive a sharp rise in interest rates that brings the global economy to a standstill.

Those nerves and the still-escalating war in Ukraine took Europe’s main markets down more than 2% in early trade and left MSCI’s top index of world shares (.MIWD00000PUS) at its lowest since late 2020 and down nearly 20% for the year.

The global growth-sensitive Australian and New Zealand dollars fell about 0.8% to almost two-year lows. The Chinese yuan slid to a 19-month trough while the dollar powered to its highest level since late 2002.

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Nearly all the main volatility gauges were signaling danger. Bitcoin was caught in the fire-sale of risky crypto assets as it fell another 8% to $26,570, having been near $40,000 just a week ago and almost $70,000 just last November.

“We have had big moves,” UBS’s UK Chief Investment Officer Caroline Simmons, said referring as well to bond markets and economic expectations. “And when the market falls it does tend to fall quite fast.”

Data on Wednesday had shown US inflation running persistently hot. Headline consumer prices rose 8.3% in April year-on-year, fractionally slower than the 8.5% pace of March, but still above economists’ forecasts for 8.1%. read more

US markets had whipsawed after the news, closing sharply lower, and futures prices were pointing to another round of 0.2%-0.7% falls for the S&P 500, Nasdaq and Dow Jones Industrial later.

“We’re now very much embedded with at least two further (US) hikes of 50 basis points on the agenda,” said Damian Rooney, director of institutional sales at Argonaut in Perth.

“I think we were probably delusional six months ago with the rise of US equities on hopes and prayers and the madness of the meme stocks,” he added.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 2.3% to a 22-month low overnight. Japan’s Nikkei (.N225) fell 1.8%.

Treasuries were bid in both Europe and Asia, especially at the long end, flattening the yield curve as investors braced for near-term hikes to hurt long-run growth – an outcome that would most likely slow or even reverse rate hikes.

The benchmark 10-year Treasury yield had dropped in the US and fell a further 7 bps to 2.8569% on Thursday. The gap between the highly rate-rise sensitive two-year yields and 10-year ones narrowed 4.2 bps .

In Europe, Germany’s 10-year yield, the benchmark for the bloc, fell as much as 12 bps to 0.875%, its lowest in nearly two weeks.

“I think a lot of it is catch up from what happened yesterday, and also there’s still a lot of negative sentiment in the US Treasury curve,” said Lyn Graham-Taylor, senior rates strategist at Rabobank.

SELL IN MAY

The rates outlook is driving up the US dollar and taking the heaviest toll on riskier assets that shot up through two years of stimulus and low-rate lending.

The Nasdaq (.IXIC) is down nearly 8% in May so far and more than 25% this year. Hong Kong’s Hang Seng Tech index (.HSTECH) slid 1.5% on Thursday and is off more than 30% this year.

Cryptocurrency markets are also melting down, with the collapse of the so-called TerraUSD stablecoin highlighting the turmoil as well as the selling in bitcoin and next-biggest-crypto, ether. read more

A weakening growth picture outside the United States is battering investor confidence, too, as war in Ukraine threatens an energy crisis in Europe and lengthening COVID-19 lockdowns in China throw another spanner into supply chain chaos.

Nomura estimated this week that 41 Chinese cities are in full or partial lockdowns, making up 30% of the country’s GDP.

Heavyweight property developer Sunac (1918.HK) said it missed a bond interest payment and will miss more as China’s real estate sector remains in the grip of a credit crunch. read more

The yuan fell to a 19-month low of 6.7631 and has dropped almost 6% in under a month.

The Australian dollar fell 0.8% to a near two-year low of $0.6879. The kiwi slid by a similar margin to $0.6240, though the euro and yen held steady to keep the dollar index just shy of a two-decade peak.

Sterling was at a two-year low of just under $1.22 as well as economic data there caused worries and concerns grew that Britain’s Brexit deal with the EU was in danger of unraveling again due to the same old problem of Northern Ireland’s border. read more

In commodity trade, oil wound back a bit of Wednesday’s surge on growth worries.

Brent crude futures fell 2.3% to $104.93 a barrel, while highly growth-sensitive metals copper and tin slumped over 3.5% and 9% respectively. That marked copper’s lowest level since October.

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Additional reporting by Tom Westbrook in Singapore; Editing by Kim Coghill

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Indexes fall, led by Nasdaq, as inflation data offers little relief to investors

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, US, May 11, 2022. REUTERS/Brendan McDermid

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  • US consumer prices slow in April; inflation still high
  • Coinbase falls on Q1 revenue slump, net loss
  • Indexes: Dow down 0.1%, S&P down 0.6%, Nasdaq off 2%

May 11 (Reuters) – US stocks were lower in afternoon trading Wednesday, led by a more than 2% decline in the Nasdaq after US consumer price index (CPI) data did little to ease investor worries over the outlook for inflation and interest rates.

The Labor Department’s monthly report suggested inflation may have peaked in April but is likely to stay strong enough to keep the Federal Reserve on top of cooling it down. read more

The CPI increased 0.3% last month, the smallest gain since last August, while economists polled by Reuters had forecast consumer prices gaining 0.2% in April.

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“There was not enough of a positive surprise to underpin the market,” said Quincy Krosby, chief equity strategist at LPL Financial in Charlotte in North Carolina.

“This is a market still trying to come to grips with whether the Fed is going to be able to rein in inflation early on.”

Consumer discretionary (.SPLRCD) and technology (.SPLRCT) led declines among S&P 500 sectors. The prospect of rising interest rates has hit growth stocks especially hard.

Energy (.SPNY) shares were up sharply and helped to limit declines in the S&P 500 and Dow.

The Dow Jones Industrial Average (.DJI) fell 45.7 points, or 0.14%, to 32,115.04, the S&P 500 (.SPX) lost 22.23 points, or 0.56%, to 3,978.82 and the Nasdaq Composite (.IXIC) dropped 235.83 points, or 2.01%, to 11,501.84.

The S&P 500 is down about 16% so far this year following concerns about how aggressively the central bank may need to raise rates, and also about the Ukraine war and the latest coronavirus lockdowns in China.

Coinbase Global Inc (COIN.O) slid 24% after its first-quarter revenue missed estimates amid turmoil in global markets that has curbed investor appetite for asset risk. read more

Declining issues outnumbered advancing ones on the NYSE by a 1.21-to-1 ratio; on Nasdaq, a 2.40-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week highs and 60 new lows; the Nasdaq Composite recorded 10 new highs and 1,075 new lows.

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Additional reporting by Amruta Khandekar, Devik Jain in Bengaluru and Sinéad Carew in New York; Editing by Arun Koyyur and Aurora Ellis

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Shares drop, yields shoot up after US inflation data

MILAN, May 11 (Reuters) – World shares turned lower on Wednesday and bond yields shot up after US data showed inflation there slowed down less than expected last month, cementing expectations of aggressive rate hikes by the Federal Reserve.

US futures turned negative after data showed US annual consumer price growth slowed to 8.3% in April from 8.5% in March, suggesting that inflation has probably peaked. The number, however, was above the 8.1% analyst had expected.

Paolo Zanghieri, senior economist at Generali Investments, said the data confirmed the view that the return of inflation to more tolerable values ​​will take time.

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“Overall today’s data add to the case of the strong front-loading called for by (|Fed Chair Jerome) Powell in the last meeting, who also suggested the possibility of two more 50bps rise in June and July,” Zanghieri said. “However, this will keep concern about the possibility of a recession high, and ultimately weakening growth may lead the Fed to temper it tightening after the summer.”

MSCI’s benchmark for global stocks (.MIWD00000PUS) was flat by 1247 GMT, having earlier risen as much as 0.3%. On Tuesday, the index fell to its lowest level since November 2020 on fears Fed tightening could significantly slow down the global economy.

US equity futures turned sharply negative, with the Nasdaq and S&P 500 e-minis down 1% and 0.6% respectively. The pan-European STOXX 600 (.STOXX) equity benchmark index also trimmed gains, and was last up 0.2%.

Money markets ramped up bets of Fed rate hikes by end-2022 to 208 basis points after the US inflation numbers, compared to around 195 bps before.

Earlier in Asia, equities squeezed higher from near two-year lows. Chinese blue chips (.CSI300) rose 1.4% after Shanghai officials said half the city had achieved “zero COVID” status, and after US President Joe Biden said he was considering eliminating Trump era tariffs on China.

Chinese data released on Wednesday, however, showed consumer prices rose 2.1% from a year earlier, more than expected and at the fastest pace in five months, partly due to food prices.

YIELDS SHOOT UP

After falling to their lowest levels in almost a week earlier on Wednesday, benchmark 10-year Treasury yields turned positive after the inflation data, marching back towards the three-year high of 3.203% hit on Monday.

The 10-year yield was last up 6 basis points on the day to 3.0502%, while the 2-year yield , which often reflects the Fed rate outlook, jumped 11 bps to 2.717%.

Euro area government bond yields also sold off following the US data, sending German 10-year yields up 8 bps to 1.084% .

Bets on aggressive Fed tightening have also supported the dollar this year.

The dollar index, which measures its performance against six main peers, reversed earlier weakness and was last up 0.1% to 104.04, closer to the two-decade high of 104.19 reached at the start of the week.

The Fed last week raised interest rates by 50 basis points and Chair Jerome Powell said two more such hikes were likely at the upcoming policy meetings.

There has also been speculation in markets the US central bank will need to move by 75 basis points at one meeting and currently money markets are pricing over 190 basis points of combined rate hikes per year.

“The current problem is that the market is convinced that the Fed is determined to fight inflation and therefore willing to tolerate market volatility and some demand destruction more than in the past. Personally, I’m less convinced of this determination,” said Giuseppe Sersale , fund manager at Anthilia.

Morgan Stanley forecasts 2022 global economic growth to be less than half of last year’s at 2.9%, down from a previous estimate of 3.2%. read more The US bank also cut its year-end target for the S&P 500 by 11% to 3,900 points, while raising its US 10-year yield forecast by 55 bps to 3.15%.

Oil bounced back, buoyed by supply concerns as the European Union works on gaining support for a ban on Russian oil.

Brent rose 2.6% to $105.12 a barrel and US crude rose 3% to $102.77.

Spot gold dipped 0.1% to $1,836.2 an ounce.

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Reporting by Danilo Masoni in Milan, Sujata Rao in London and Alun John in Hong Kong, Editing by William Maclean and Tomasz Janowski

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Analysis: Pain not over for US bond market but some see yields nearing their peaks

An eagle tops the Federal Reserve building’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst

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NEW YORK, May 10 (Reuters) – Interest rate jitters keep hammering the US bond market but some investors are starting to think a possible slowdown in price pressure as well as support from yield-seeking buyers could soon put a ceiling – or at least a pause – on rising yields.

US Treasuries have had their worst start to the year in history and the selloff in parts of the curve continued last week after the US Federal Reserve hiked its benchmark overnight interest rate by 50 basis points and announced it would begin to trim its balance sheet next month to counter unabated inflation.

Yet for some investors most of the inflation-driven weakness in bond markets has been priced in and, while there is still room for upside, yields could start subsidizing soon, as financial conditions tighten on the back of the Fed’s actions.

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“We’re probably getting closer to the peak in terms of yields,” said John Madziyire, a senior portfolio manager and head of US Treasuries and Inflation within Vanguard’s Fixed Income Group.

“Yields can still go higher as a function of the fact that volatility is so high, but we’re probably getting close to a point where we’re pricing in the highs in yields and buyers will start being more attracted to buying at these levels ,” he said.

Yields of 10-year US government bonds – a benchmark for mortgage rates and other financial instruments – hit a fresh high of 3.2% on Monday, a level last seen in November 2018. If it breaks above 3.26% it will pierce those 2018 highs and be at 2011 levels.

Brian Reynolds, chief markets strategist at Reynolds Strategy, pointed to 2018 and 2011 as “two highly emotional events in bond market history,” with 2018 marking investors being “frightened that the Fed was going to tighten to infinity” while 2011 was the year when the United States lost its triple-A rating.

Yields had already blasted past expectations. A March 29-April 5 Reuters poll showed that fixed income experts projected the 10-year bond will rise to 2.60% in a year. read more

After hitting 3.2% on Monday, however, yields have fallen back to around 3% in a flight to safety, as stocks plummeted due to concerns about rising interest rates and an economic slowdown in China after a recent rise in coronavirus cases.

“The momentum in the upwards push in interest rates seems to be slowing a bit,” said Mike Vogelzang, chief investment officer at CAPTRUST, also pointing to relatively stable yields on two-year US government bonds, with prices having seemingly reflected the Fed’s planned rate hikes this year.

Two-year yields, which are particularly sensitive to changes in monetary policy, have inched lower since the Fed hiked rates last week, and the yield curve between two-year notes and 10-year bonds has been steepening sharply, from 18.9 basis points before the Fed’s hike to 44 basis points on Monday.

That part of the curve inverted in late March and then in April, sending a warning sign for investors that a recession could follow. read more

“The curve was pretty flat a month ago and it’s now steepened out … generally a steeper curve is healthy,” said Eric Stein, co-head of Global Fixed Income and chief investment officer at Morgan Stanley Investment Management.

“We’re starting to get to the conditions in place for yields to stop continuing to go up,” Stein said, pointing to a tightening of financial conditions and lower inflation expectations as measured by Treasury Inflation-Protected Securities. read more

Breakeven inflation rates, indicating the market’s expectations for future inflation, have plummeted. The 10-year breakeven inflation rate – an indicator of future inflation – declined to 2.79% on Monday, further retreating from a 3.14% hit last month, the highest since at least September 2004.

Fed Chair Jerome Powell said last week policymakers were ready to approve half-percentage-point rate hikes at upcoming policy meetings in June and July.

For Jimmy Lee, chief executive officer of The Wealth Consulting Group, a wealth management firm, demand for 10-year notes will likely increase should they hit a 3.5% yield over the next two months.

“The pain is probably not over yet, but I’m sensing that we’re getting close,” he said.

“Between now and after those two hikes, I think there’s going to be some potential buying. I think fund managers are seeing value that they haven’t seen in a long time.”

For CAPTRUST’s Vogelzang, however, there is no sign in the market that an upper limit in yields is about to be reached, and the Fed’s balance sheet runoff, expected to start next month, could add further pressure.

“There’s too many outcomes that can take place that could really leave you in a bad spot,” he said.

(This story corrects the last sentence to say “many” instead of “may.”)

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Reporting by Davide Barbuscia in New York Editing by Megan Davies and Matthew Lewis

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ARK’s Wood sees global recession, blames market selloff on Fed hike plan

Cathie Wood, Founder, CEO and CIO of ARK Invest, speaks at the 2022 Milken Institute Global Conference in Beverly Hills, California, US, May 2, 2022. REUTERS/David Swanson

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NEW YORK, May 10 (Reuters) – The global economy is in recession and recent stock market volatility is a sign investors believe that the Federal Reserve’s plan to continue hiking interest rates is too aggressive, star stock picker Cathie Wood said in a webinar on Tuesday .

Wood, whose ARK Innovation ETF (ARKK.P) outperformed all other US equity funds during the pandemic rally in 2020, said slowing economic growth will likely benefit the type of innovative companies that the fund invests in.

“There are a lot of indicators to us that we are in a bit of a bear market” because of the Fed’s expected plan to increase rates by 50 basis points at its June and July meetings, Wood said. “The markets are speaking pretty loudly right now and seem to be calling into question the Fed’s strategy.”

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The benchmark S&P 500 is down approximately 16% for the year to date, near the 20% decline that typically means a bear market.

At the same time, “innovative” companies are being subject to “incredible” shorting activity, Wood suggested, pushing stock prices lower.

“If we are right, then shorts will be forced to cover and we are certainly looking forward to that time,” Wood said.

The $7.9 billion ARK Innovation Fund, which gained 2% in Tuesday trading, is down 57.6% for the year to date. Overall, the fund is now down nearly 75% from its record high in February 2021, and close to the low of $34.69 it touched in March 2020 at the start of the coronavirus pandemic.

The fund added a position in General Motors Co (GM.N), largely due to signs it is “serious” about its move into electric vehicles, the company said during the webinar Tuesday. Tesla Inc (TSLA.O) remains its largest overall position.

Despite its losses, ARK Innovation continues to draw the interest of investors. The fund has received positive inflows on net over the last 4 weeks, including $455.7 million in net inflows the week that ended May 4, according to Lipper data.

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Reporting by David Randall

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CPI, PPI: Markets look for signs of US inflation peak

NEW YORK, May 10 (Reuters) – In the wake of the 50-basis-point interest rate hike by an increasingly hawkish Federal Reserve, markets have gyrated wildly ahead of this week’s US economic data, which will be closely parsed for signs that inflation is peaking.

Price growth has soared to the highest level since the early 1980s due to the collision of a post-pandemic demand boom and a gummed up global supply chain, and has stoked fears that the Fed’s aggressive attempts to rein it in could lead the economy into recession .

The Labor Department’s jobs report on Friday provided the first potential sign of a plateau, with monthly wage growth decelerating to 0.3% from 0.5% and holding steady at 5.5% year-on-year.

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On Wednesday, analysts expect the consumer price index (CPI) to show a sharp pullback in monthly growth, cooling to 0.2% in April from 1.2% in March — the biggest monthly jump in more than 16 years — and an annual increase of 8.1%, 0.4 percentage point lower than the prior 8.5%, which was the hottest reading since December 1981. read more

Energy and food prices were the culprit, exacerbated by fallout from the Russia-Ukraine war.

“Russia’s invasion of Ukraine has magnified the pace of inflationary pressures this year and the Fed can’t do much about that,” said David Carter, managing director at Wealthspire Advisors in New York.

Energy prices posted an 11% monthly jump in March, with gasoline surging by a jaw-dropping 18.3%. Average prices at the pump hit a record high in March, according to motorist group AAA.

Food eaten at home rose 1.5% on a monthly basis, and grocery prices rose by 10% year-on-year, the fastest annual growth in more than four decades.

Stripping out food and energy prices, so-called “core” CPI is expected to have edged up by 0.4% last month, but cooling to 6.0% from 6.5% on an annual basis.

inflation

Any sign of slowdown would be welcomed by markets.

“If inflation prints at expectations, it would be the first meaningful decline in the annualized inflation rate since the depths of the COVID recession,” writes Matt Weller, global head of research at StoneX Financial.

People are seen on Wall St. outside the New York Stock Exchange (NYSE) in New York City, US, March 19, 2021. REUTERS/Brendan McDermid

Thursday’s producer prices (PPI) data, which reflects the prices US companies receive for their goods and services at the figurative factory door, are predicted to tell a similar tale.

Consensus estimates forecast a sharp deceleration in headline PPI, and a shallower slowdown when stripped of food and energy items.

Recent survey data, particularly from the Institute for Supply Management’s (ISM) purchasing managers’ indexes (PMI) reveal that two main drivers of inflation — supply scarcity and the ongoing worker drought — remained significant headwinds in April.

On Tuesday, while 32% of survey participants in the National Federation of Independent Business’ (NFIB) Business Optimism survey rated inflation their top concern — a record-high reading — fewer respondents reported raising prices and hiking wages.

Inflation worries and prices paid

So far, many companies have been able to pass input costs along to their customers. In fact, the S&P 500 12-month forward profit margin is increasing.

As of May 6, that figure was 13.4%, higher than the early May readings going back at least 12 years, according to Refinitiv Datastream.

“Corporations have been able to pass on higher costs as demand remains strong,” Carter added. “However, if the Fed’s interest rate increases cool demand, companies will be unable to pass along higher costs and margins will shrink.”

How will the markets react to the data?

The S&P 500 slipped 0.3% on April 12, when March’s dire — although largely expected — CPI report was released. Any number at or below consensus on Wednesday would likely be welcomed by investors.

“Under the hood, there continue to be signs that inflation, labor market tightness, and supply chain woes may all have peaked,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “The market is in ‘prove it’ mode, and those early signs are still far from adequate proof to calm the markets.”

(This story files to add graphics)

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Reporting by Stephen Culp; Editing by Alden Bentley and Andrea Ricci

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Categories
Business

S&P 500, Nasdaq end up but investors cautious before inflation data

A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, US, May 9, 2022. REUTERS/Brendan McDermid

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  • All eyes on US CPI data on Wednesday
  • Peloton falls as CEO says business “thinly capitalized”

NEW YORK, May 10 (Reuters) – The S&P 500 and Nasdaq ended higher on Tuesday, with big growth shares rising after the previous day’s selloff as Treasury yields eased.

At the same time, bank shares fell. The yield on the benchmark 10-year note tumbled from more than a three-year high to below 3%.

The day’s trading was choppy, with major indexes moving between gains and losses as investors were also nervous ahead of the release of Wednesday’s US consumer price index data and Thursday’s producer prices data.

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Investors will be looking for signs that inflation is peaking. read more

Worries that the US Federal Reserve may have to move more aggressively to curb inflation have driven the recent selloff in the market. A host of other concerns have added to the pressure.

“At this point, it’s just fear-based selling,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.

“It can’t just be the Fed’s going to raise rates to stave off inflation, because we’ve seen that before,” he said. Instead, investors are worried about everything from rates and inflation to the war in Ukraine, supply chain problems and China’s COVID-19 lockdowns, Dollarhide said.

Shares of Apple Inc (AAPL.O) were higher and giving the S&P 500 and Nasdaq their biggest boost. S&P 500 technology (.SPLRCT) led gains among sectors in the S&P 500.

According to preliminary data, the S&P 500 (.SPX) gained 10.77 points, or 0.27%, to end at 4,002.01 points, while the Nasdaq Composite (.IXIC) gained 114.11 points, or 0.98%, to 11,737.35. The Dow Jones Industrial Average (.DJI) fell 82.39 points, or 0.26%, to 32,163.31.

Investors digested comments from Cleveland Fed President Loretta Mester, who said the US economy will experience turbulence from the Fed’s efforts to bring down inflation running at more than three times above its goal and recent volatility in the stock market would not deter policymakers. read more

Peloton Interactive Inc (PTON.O) tumbled as the fitness equipment maker warned the business was “thinly capitalized” after it posted a 23.6% slide in quarterly revenue. read more

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Reporting by Caroline Valetkevitch; additional reporting by Amruta Khandekar and Devik Jain in Bengaluru; Editing by Sriraj Kalluvila, Shounak Dasgupta and Aurora Ellis

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Categories
Business

Wall Street dips while treasury yields, oil prices drop

NEW YORK, May 10 (Reuters) – Wall Street stocks turned lower in a volatile session and oil prices fell on Tuesday with risk appetite appearing to falter as investors turned to safe havens such as Treasuries amid fears about inflation and slowing economic growth.

US Treasuries rallied, with the yield on the benchmark 10-year note tumbling from more than a three-year high to below 3% as the market reassessed the inflation outlook a day before US consumer price index (CPI) data is released.

Markets have been volatile due to a combination of surging inflation and fears that monetary tightening aimed at slowing price increases would also cause a slowdown in economic growth.

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Last week central banks in the United States, Britain and Australia raised interest rates and investors girded for more tightening as policymakers fought soaring inflation.

While all three US indexes were rebounding from Monday’s sell-off, enthusiasm for equities quickly faded.

“There’s a tonne of cross currents right now. Liquidity is drying up and volatility is the name of the game,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management in Boston.

“The tech and growth side of the (equities) market is such a big weight. Treasury yields going up as fast as they did spooked risk assets. If they could take a breather here it could let the market … find some footing. “

Miskin was reassured by Federal Reserve official comments on Tuesday that suggested efforts to engineer a soft landing. In particular he pointed to Cleveland Federal Reserve Bank President Loretta Mester’s comment that while unemployment may increase and growth slow, the Fed’s policy tightening should not push the economy into a “sustained downturn.” read more

“They’ve been so hawkish so any slight move off that the market wants to sniff that out,” said Miskin. “Sentiment wise a lot of people are looking for capitulation. The dots aren’t completely connecting yet for that.”

At 1130 EDT (1530 GMT), the Dow Jones Industrial Average (.DJI) fell 97.45 points, or 0.3%, to 32,148.25, the S&P 500 (.SPX) lost 10.91 points, or 0.27%, to 3,980.33 and the Nasdaq Composite ( .IXIC) dropped 16.49 points, or 0.14%, to 11,606.76.

The pan-European STOXX 600 index (.STOXX) rose 0.80% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) shed 0.33%, after earlier rising as much as 1.44%.

The US dollar was choppy on Tuesday as it held near a two-decade high ahead of a key reading on inflation that could provide insight on the Fed policy path. read more

The dollar index rose 0.164%, with the euro down 0.19% to $1.0535. The Japanese yen weakened 0.03% versus the greenback at 130.29 per dollar, while Sterling was last trading at $1.2301, down 0.24% on the day.

Earlier data showed China’s export growth slowed to its weakest in almost two years, as the central bank pledged to step up support for the slowing economy. read more

Oil prices fell in volatile trade as the market balanced impending European Union sanctions on Russian oil with demand concerns related to coronavirus lockdowns in China, a strong dollar and growing recession risks.

US crude recently fell 1.85% to $101.18 per barrel and Brent was at $103.92, down 1.91% on the day.

Benchmark 10-year notes last rose 33/32 in price to yield 2.9497%, from 3.079% late on Monday.

Spot gold dropped 0.4% to $1,847.41 an ounce. US gold futures % to $1,857.10 an ounce.

Elsewhere, Bitcoin was up 4% after earlier falling to its lowest level since July 2021. Tuesday’s gain allowed it to recover some losses when it tumbled 11.8% on Monday plunge, which had been its biggest daily fall since May 2021 . read more

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Additional reporting by Herbert Lash and Chuck Mikolajczak in New York, Elizabeth Howcroft in London; Editing by Bradley Perrett, Raissa Kasolowsky and Alexander Smith

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