Stocks fall, bond yields rise on inflation fears

  • The European STOXX 600 index gave up its gains
  • Commodities and tech stocks drop
  • Bond yields continue to rise after inflation in the euro area
  • The dollar rises to a two-week high against the yen
  • Wall Street stocks brace for small gains

LONDON (Reuters) – Global stocks fell and bond yields rose on Wednesday, while the dollar rose as investors worried about rising inflation and the impact of an impending interest rate hike on global growth.

European STOXX 600 Index (.stoxx) It turned negative in morning trading, giving up early gains at 0.3%. British stocks (.FTSE) It decreased by 0.2%.

The decline in commodity and technology-related stocks outweighed gains in banking and consumer stocks, as data showed German retail sales fell more than expected in April as consumers felt the pain of higher prices. Read more

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Tuesday’s figures showed that rising food and energy costs pushed inflation in the euro zone to a record high of 8.1% in May, raising concern about higher interest rates not only in Europe but globally. Read more

The Bank of Canada is the latest central bank to plan to raise interest rates, with economists expecting an increase to 1.5% from 1.0% later on Wednesday. Read more

Market players were watching whether attempts to curb inflation by central banks around the world with tighter monetary policy would trigger recessions – which in turn could slow interest rate hikes.

“It’s just an incredibly uncertain environment right now,” said Mike Bell, global market strategist at JPMorgan Asset Management. “At times like these, it only makes sense to adjust the size of the risk positions.”

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Bell said investors were also concerned about whether the European Union’s agreement on a ban on imports of Russian crude would see retaliation from Moscow. The ban aims to halt 90% of Russia’s crude imports into the bloc by the end of the year. Read more

Wall Street was on the verge of making small gains. S&P 500 futures rose 0.1%, losing some of the gains they made in early London trade.

MSCI World Stock Index (.MIWD00000PUS.)which tracks stocks in 50 countries, has been consistent.

Earlier, Shanghai was shown flashing after two months of lockdown, but with data showing a sharp drop in factory activity across Asia from slumping Chinese demand, relief in the region is short-lived. Read more

MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It fell 0.4%, dragged down by the Hang Seng Index in Hong Kong (.HSI).

Meanwhile, eurozone bond yields extended their rally in the wake of the bloc’s inflation data. The German benchmark 10-year yield has already risen 19 basis points this week, and is heading for its biggest weekly increase in nearly a month.

As concerns about global inflation flared up again, the US dollar rose to a two-week high against the yen, boosted by rising Treasury yields. The dollar stopped falling in three weeks and hit a two-week high of 129.54 yen.

The dollar index, which measures the currency against six major peers, including the yen, rose 0.2% to 102.05, extending its 0.4% gain from Tuesday.

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On Wednesday, the US Federal Reserve will begin to reduce the asset holdings that have accumulated during the pandemic. Traders expect interest rates to rise by 50 basis points at meetings this month and next and are unsure and increasingly concerned after that.

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Louis Fed President James Bullard and New York Fed President John Williams are also scheduled to speak on Wednesday, and will be watched for evidence of the outlook.

“We’re in this kind of twilight zone right now where it’s very difficult to deal with what the Fed will do after the July meeting,” said Moh Seong Sim, an analyst at the Bank of Singapore.

“Depending on who says what and how the data will turn out, there will be a lot of volatility over the next few weeks.”

In the commodity markets, oil prices rose slightly after the European Union agreed to a partial and gradual ban on Russian oil and with the end of the Shanghai COVID-19 lockdown.

Brent crude futures rose in the latest trading by 1.7 percent to $117.58 a barrel.

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Additional reporting by Tom Wilson in London and Tom Westbrook in Singapore Editing by Emilia Sithole Mataris and Mark Potter

Our criteria: Thomson Reuters Trust Principles.

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