U.S. dollar climbs as growth worries batter stocks

  • Stocks slide as inflation fears lead to uncertainty
  • UK inflation hits 9%, Canada rises to 6.8%
  • German 2-year bond yields hit 2011 ECB rate hike highs

NEW YORK, May 18 (Reuters) – Global stock markets tumbled on Wednesday and the U.S. dollar strengthened for the first time in four sessions as concerns over rising inflation and economic growth dented sentiment.

That sentiment was underscored by a 9% surge in UK consumer prices and a faster-than-expected acceleration in Canadian inflation.

UK inflation surged to its highest annual rate since 1982 as energy bills soared, while Canada’s rose to 6.8 per cent last month, mainly driven by higher food and housing prices, Statistics Canada data showed.read more

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Inflation in the U.K. is now the highest among major European economies, but global prices are rising rapidly, forcing central banks around the world to raise interest rates and dampen growth, as evidenced by a modest drop in U.S. homebuilding in April.read more

Soaring prices and material shortages have hit residential construction, the most interest-rate-sensitive sector of the economy. But the Commerce Department report also showed a record high backlog of homes to be built, suggesting the decline in homebuilding may be minimal.

Target’s earnings results add to haze from inflation (TGT.N), the company’s quarterly profit halved as it warned that margins would be higher this year due to higher fuel and freight costs.read more

Target shares tumbled 24.88%, their biggest one-day percentage drop since the October 19, 1987 “Black Monday” stock market crash, a day after Walmart Inc. (WMT.N) Warning of a similar margin crunch, its shares fell 11.4%, their biggest one-day percentage drop since Oct. 16, 1987.

“It was Walmart yesterday, and everyone thought it was a one-off,” said Dennis Dick, director of market structure and proprietary trader at Bright Trading LLC in Las Vegas. “Right now Target is missing out on even more revenue than Walmart, and they’re worried that the consumer isn’t as powerful as everyone thinks.”

MSCI’s measure of global equities (.MIWD00000PUS) Down 2.74%, while in Europe, the pan-regional STOXX 600 index (.STOXX) It closed down 1.14%.

On Wall Street, the Dow Jones Industrial Average (.DJI) The S&P 500 fell 3.56% (.SPX) Down 4.03%, the Nasdaq Composite (.IXIC) Down 4.73%.

The declines for the S&P 500 and the Dow were their biggest one-day percentage losses since June 11, 2020.

Given the magnitude of macroeconomic uncertainty, few analysts are willing to predict that risk assets will end the sell-off after taking a beating in the first five months of the year, and many expect market volatility to be the norm for some time.

The dollar rose as a sell-off in risk assets boosted the greenback’s safe-haven appeal and was on track to snap a three-session losing streak a day after Fed Chairman Jerome Powell pledged to ratchet the Fed Raise interest rates as high as possible to combat rising inflation.

The dollar index was up 0.581%, with the euro down 0.8% at $1.0463. The yen was up 0.92% at 128.23 against the dollar.

U.S. Treasury yields fell, although the steeper path for rates remained the broad consensus, as the benchmark 10-year yield hit a one-week high of 3.015% after Powell’s hawkish remarks.

Yields fell 8.1 basis points to 2.890% on Wednesday after weak U.S. housing starts data.

German two-year government bond yields surged to 0.444%, their highest level since November 2011, and were last up 1.6 basis points at 0.386% after the central banker’s more hawkish remarks. European Central Bank President Klaas Knot said on Tuesday that a 50 basis point rate hike in July is possible if inflation expands.

Gold prices were little changed in a safe-haven environment, even as a looming U.S. rate hike and a recovering dollar dented gold’s brilliance.

Spot gold rose 0.1% to $1,816.06 an ounce.

Oil prices fell in volatile trade, reversing early gains, after government data showed U.S. refiners ramped up output as traders feared tighter supplies.read more

U.S. crude settled down 2.5% at $109.59 a barrel, while Brent closed at $109.11, down 2.52% on the day.

MSCI World Equity Index
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Reporting by Herbert Lash and Chuck Mikolajczak; Additional reporting by Devik Jain in Bengaluru; Editing by Jonathan Otis

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