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GLOBAL MARKETS-Stocks slide, dollar gains on hot U.S. inflation data

reuters.com · 06/10/2022 15:03
GLOBAL MARKETS-Stocks slide, dollar gains on hot U.S. inflation data

Adds oil, gold settlement prices

By Herbert Lash

- Global equity markets slid and the dollar strengthened on Friday after a bigger-than-expected U.S. inflation spike in May raised concerns the Federal Reserve may tighten policy for too long and cause a sharp slowdown.

The U.S. consumer price index increased 8.6% last month, the largest year-on-year increase since December 1981, the Labor Department said. Economists polled by Reuters had expected CPI to rise 8.3% annually. nL1N2XX118

Many economists and market participants expected the data to show inflation had peaked, but gasoline prices hit a record high, the cost of food soared and rental prices surged.

"It was pretty hot. This report suggests that underlying inflation pressures remain quite strong," said Aichi Amemiya, senior U.S. economist at Nomura.

The dollar rose to a near four-week high against a basket of currencies, while U.S. Treasury prices tumbled and short- and intermediate-dated yields hit their highest levels in more than a decade. Two-year yields US2YT=RR, which are highly sensitive to rate hikes, spiked to 3.047%, the highest since June 2008.

Stocks on Wall Street and in Europe fell more than 2% as investors feared central bank efforts to control inflation would be so harsh it would slow growth and squeeze corporate earnings.

The pan-European STOXX 600 index .STOXX closed down 2.69% and MSCI's gauge of global equity markets .MIWD00000PUS shed 2.45%.

On Wall Street, the Dow Jones Industrial Average .DJI fell 2.13%, the S&P 500 .SPX lost 2.33% and the Nasdaq Composite .IXIC dropped 3.05%.

The S&P 500 is now down more than 18% from its Jan. 3 record closing peak, a drop that once again puts it close to confirming a bear market as defined by a 20% drop on a closing-price basis.

The stronger-than-expected CPI data has changed the calculus for what the Fed does in September after "most-assuredly" raising rates 50 basis points next week and in July, said Art Hogan, chief market strategist at National Securities.

Analysts at Barclays now expect the Fed to deliver its first 75 basis point increase in 28 years next week. nL1N2XV2O1

Fed funds futures traders expect the Fed's benchmark rate to increase to 3.64% next May, from 0.83% now. FEDWATCHUSONFFE=

The Fed still has a chance of engineering a softer landing as there's mounting evidence a slowdown is happening, said Rhys Williams, chief strategist at Spouting Rock Asset Management.

"At least in the goods economy, there are signs that demand is really slowing," Williams said. "Houses are on the market much longer, auto sales are not so hot and shipping rates have collapsed coming from Asia to here."


Concerns also mounted about demand and growth in China, the world's second-largest economy, after Shanghai and Beijing imposed new COVID-19 lockdown restrictions. nL1N2XW01L

The yen rose off 20-year lows after Japanese policymakers made rare comments about its weakness. Japan's government and central bank said they were concerned by recent sharp falls in the yen in a rare joint statement, the strongest warning to date that Tokyo could intervene to support the currency. nT9N2XH02A

The yen has been plumbing 20-year lows against the dollar and seven-year troughs against the euro EURJPY= on expectations the BOJ will continue to lag other major central banks in exiting its stimulus policy.

The Japanese currency strengthened 0.01% to 134.32 per dollar, while the euro weakened 0.94% against the yen.

The dollar index =USD rose 0.833%, with the euro EUR= down 0.91% to $1.0517.

Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.9%.

Continued strong buying by foreign investors and cautious hopes of regulatory easing on tech firms lifted China stocks, despite lockdown alerts.

China's blue-chip CSI300 index .CSI300 was up 1.5%, while Hong Kong shares .HSI trimmed earlier losses to end off 0.2%.

Oil prices fell on concerns rising prices will force consumers to cut demand, and as China imposed new COVID-19 lockdown measures.

U.S. crude futures CLc1 fell 84 cents to settle at $120.67 a barrel, and Brent LCOc1 settled down $1.06 at $122.01.

Gold prices rebounded strongly in volatile trade as focus turned to economic risks of elevated inflation.

U.S. gold futures GCv1 settled up 1.2% to $1,875.50 an ounce.

World FX rates YTDhttp://tmsnrt.rs/2egbfVh

Global asset performancehttp://tmsnrt.rs/2yaDPgn

Asian stock marketshttps://tmsnrt.rs/2zpUAr4

How ECB rate-hike expectations have shifted this weekhttps://tmsnrt.rs/3aHIEWK

(Reporting by Herbert Lash; Editing by Chizu Nomiyama, Kirsten Donovan and Alex Richardson)

((herb.lash@thomsonreuters.com; 1-646-223-6019; Reuters Messaging: herb.lash.reuters.com@reuters.net))

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