Stocks tumble, dollar rises as hard landing fears mount

Stocks tumble, dollar rises as hard landing fears mount

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

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  • Global stocks fall to a 1-1/2 year low, down nearly 20% year-to-date
  • Europe down over 2%, US stock futures struggle
  • Dollar hits 2-year highs against Aussie, Kiwi and Pound and since 2017 against the Euro
  • Bitcoin crashes and hits new 16-month low
  • Copper falls to lowest level since October

LONDON, May 12 (Reuters) – Stocks fell to a 1-1/2 year low and the dollar hit its highest level in two decades on Thursday, amid growing fears that rapidly rising inflation is driving interest rates higher and the global economy will come to a standstill.

That nervousness and a German warning that Russia was now “weaponizing” energy supplies dragged top European markets down 2%, leaving the MSCI index of world stocks (.MIWD00000PUS) nearly 20% lower for the year.

The global growth-sensitive Australian and New Zealand dollars fell about 0.8% to a nearly two-year low. The Chinese yuan slipped to a 19-month low while Europe’s worries pushed the euro to its lowest level since early 2017.

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Almost all major volatility indicators (.VIX)(.V2TX) signaled danger. Bitcoin caught a sell-off from risky crypto assets as it fell another 8% to $26,570 after hitting nearly $40,000 a week ago and nearly $70,000 last November.

“We’ve had big strides,” said Caroline Simmons, UBS’s UK Chief Investment Officer, also referring to bond markets and economic expectations. “And when the market goes down, it tends to go down pretty quickly.”

Tensions were fueled again when Finland confirmed it would “immediately” join the EU following the Russian invasion of Ukraine, a war that has already had major economic repercussions by driving up global energy and food prices NATO would request. Continue reading

Wednesday’s data showed US inflation continues to run hot. Headline consumer prices rose 8.3% yoy in April, slightly slower than March’s 8.5% but still ahead of economists’ forecast of 8.1%. Continue reading

US markets tumbled after the news, closing sharply lower as fears of a Fed rate hike returned. Futures prices later pointed to another round of 0.2% to 0.7% declines for the S&P 500, Nasdaq and Dow Jones Industrial.

The nearly 20% drop in the MSCI world stock index since January is its worst start to a year in recent memory.

“We are now very well embedded and have at least two more (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 as US stocks soared on hopes and prayers and meme stock madness,” he added.

World stocks suffer worst start to a year on recent records

SELL IN MAY

The main Pan-Asia-Pacific indices (.MIAPJ0000PUS) closed down 2.5% from a 22-month low overnight. Japan’s Nikkei (.N225) fell 1.8%, while Indonesian stocks (.JKSE) and Hong Kong real estate stocks (.HSMPI) both fell more than 3%, as did the South African bourse later (.JTOPI).

Fixed income markets’ guaranteed yields led to US Treasury bids, particularly at the long end, flattening the yield curve as investors braced for short-term rate hikes to hurt long-term growth — an outcome that rate hikes are likely to slow or slow would even turn back.

The benchmark 10-year government bond yield, which moves inversely with prices, fell to 2.82% on Thursday from over 3% at the start of the week, while the 10-year German government bond yield, the benchmark for Europe, fell by as much as 15 basis points fell 0.85%, the lowest in almost two weeks.

“I think a lot of what happened yesterday is catching up, and there’s still a lot of negative sentiment on the US Treasury curve,” said Lyn Graham-Taylor, senior rate strategist at Rabobank.

The prospect of the fastest Fed rate hike in decades is sending the US dollar higher and taking the heaviest toll on riskier assets, which have rallied through two years of stimulus and low-rate borrowing during the pandemic.

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

Cryptocurrency markets are also melting, with the collapse of the so-called stablecoin TerraUSD highlighting the turmoil and selling of Bitcoin and the next largest crypto, Ether, which fell 15%. Continue reading

Tether, currently the world’s largest stablecoin by market cap with value directly tied to the dollar, broke below its so-called US dollar peg on Thursday. The global sell-off has now wiped more than $1 trillion from crypto markets. Around 35% of that loss occurred this week.

“TerraUSD’s peg collapse had some uncomfortable and predictable impacts. We have seen broad liquidation in BTC, ETH and most ALT coins,” said Richard Usher, head of OTC trading at BCB Group, referring to other cryptocurrencies.

STERLING slammed

A slowing growth picture outside the United States is also shaking investor confidence as the war in Ukraine threatens an energy crisis in Europe and the extension of COVID-19 lockdowns in China further disrupts supply chain chaos.

Nomura this week estimated that 41 Chinese cities are under full or partial lockdown, accounting for 30% of the country’s GDP.

Heavyweight real estate developer Sunac (1918.HK) said it missed a bond interest payment and will miss more as a credit crunch continues to grip China’s real estate sector. Continue reading

The yuan fell to a 19-month low of 6.7631 and is down nearly 6% in less than a month.

The Australian dollar fell 0.8% to a nearly two-year low of $0.6879. The kiwi slipped even further to $0.6240. The euro fell below $1.04 and the yen to 128.5, keeping the dollar index at a two-decade high.

Sterling was at a two-year low of just under $1.22 and economic data there was a cause for concern, with growing concerns that the UK’s Brexit deal with the EU might be back on hold over the same old Northern Ireland border issue could falter. Continue reading

In commodities trading, oil moderated Wednesday’s rise on growth concerns.

Brent crude futures fell 2.3% to $104.93 a barrel, while highly growth-sensitive metals copper and tin fell 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 Chizu Nomiyama, Kirsten Donovan

Our standards: The Thomson Reuters Trust Principles.

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