LONDON – European and Asian stock markets fell sharply on Thursday, following Wall Street’s worst day since mid-2020, as stern warnings from the world’s largest retailers underscore how difficult inflation is.
Bond markets jumped for security and bets that interest rate hikes could be rebuilt, but it was the U.S. retail giant Target shares that were striking down equities after wiping out $ 25 billion on Wednesday that dominated the action.
Europe was down 2% at lunch, leading to a 2.5% fall in its retail sector, with red US futures and a sharp overnight Chinese technological push pushing the MSCI all-country world to a 1-1 / 2 year low.
That 47-country index is now down nearly 18%, the worst start in a single year on a recent record.
“Target and Walmart are coming up with disappointing numbers, really, really scary,” said Robert Alster, chief investment officer at Close Brothers Asset Management.
“We’re going to see a downturn in US GDP (forecast) now. It really looks like we’re in a recession faster than expected.”
The S&P 500 lost 4% on Wednesday while the Nasdaq fell nearly 5% as interest rate sensitive megacap stocks Amazon, Nvidia and Tesla fell close to 7% and Apple fell 5.6%.
Asia-Pacific shares former Japan then snapped 1.8% fading four-day gain, 1.65% loss for Australia’s wealth-heavy index, 2.5% drop in Hong Kong. Tokyo’s Nikkei is down 1.9%.
The tech giants listed in Hong Kong were particularly hurt, with the index down nearly 4%. China’s online behemoth Tencent sank more than 6% after not raising any revenue in the first quarter, its worst performance since going public in 2004.
China’s technology and property sectors are still slowing economic prospects stemming from a year-long government crackdown and Beijing’s tough zero-quad policy, although calming remarks by tech executives from Vice Premier Liu He on Wednesday sparked emotions.
The focus remains on what the central banks will do now as they walk the hard way to try to regulate inflation, which is now at a 40-year high in some countries, without causing a painful recession.
“We need to discuss what we can do together in our respective responsibilities to avoid stagnation,” said German Finance Minister Christian Lindner during a two-day meeting of top central bankers near the forest.
The two top U.S. central bankers said Wednesday that they expect the Federal Reserve to slow further rate hikes after July, but traders in Europe are suddenly setting prices on four ECB hikes. It has not raised interest rates for a decade.
However, when things do not reach a point of return, they seem to be moving “out of control. This is probably the most worrying part of the market,” said Hebe Chen, IG’s market analyst.
In the currency market, the US dollar retreated 0.3% against a basket of major currencies, after jumping 0.55% overnight, ending a three-day losing streak.
The euro gained 0.4% in the wake of the ECB rate hike, while the Aussie dollar rose 0.8% and the New Zealand kiwi dollar bounced 0.6%, helping to ease Shanghai’s cowardly lockdown in China.
The US Treasury rallied overnight and was bright at 2.84% in Europe where risk-averse mood also saw yields on German 10-year bonds – which go against the price – return below the closely observed 1% level.
Inflation worries have seen oil prices ease again, as fears of slower economic growth and signs that Venezuelan oil could return to the market have outpaced long-term fears due to tight global supplies.
Brent crude traded $ 110.41 to $ 108.04 a barrel in London trading, while US crude fell to $ 108.05 a barrel and gold, which has fallen more than 12% since March, reached $ 1,830 an ounce.
(Additional report by Francesco Canepa in Koenigswinter, Germany, Stella Kew in Beijing, and Alun John in Hong Kong; Editing by Nick McPhee and Chizu Nomiyama)