NEW YORK (Reuters)
Global equities fell further today (May 19), unable to sustain a late rally on Wall Street, as investors dumped stocks on fears of sluggish growth and bought safe-haven assets such as government debt and the Swiss franc.
Supply chain woes continued to fuel inflation and growth concerns as Cisco Systems Inc warned of persistent component shortages, knocking its shares down 13.7 per cent. The plunge made it the latest big name stock this week to post its largest decline in more than a decade.
Data showed factory output in the US Mid-Atlantic region decelerated far more than expected in May with the business outlook for the six months ahead the weakest in more than 13 years, a regional Federal Reserve bank survey said.
Some megacap growth stocks that have underperformed this year posted gains but the rally fizzled. The Dow Jones Industrial Average fell 0.75 per cent, the S&P 500 lost 0.58 per cent and the Nasdaq Composite dropped 0.26 per cent.
Big slides for Walmart on Tuesday and Target on Wednesday have demoralised investors who wonder about rising costs across the supply chain, said Michael James, managing director of equity trading at Wedbush Securities.
“You got a pretty severe shock to the system for portfolio managers with the combination of those two,” James said. “That type of damage is hard to repair, piled on top of the extremely challenging year that technology investors have had,” he said.
MARKET VIEWED AS EXTREMELY OVERSOLD
But James said there are those who view the market as being extremely oversold and “you’re due for some kind of a bounce.”
Traders are looking for a catalyst that will turn the market around as a near-term bottom approaches, said Rick Meckler, president of hedge fund LibertyView Capital Management LLC.
But, “there’s probably still enough fear among investors to see a few more downdrafts,” he said.
Cash hoarding has reached the highest level since September 2001, indicating strong bearish sentiment, according to Louise Dudley, a portfolio manager at Federated Hermes Ltd.
Goldman Sachs estimates a 35 per cent probability of a US recession in the next two years, while Morgan Stanley sees a 25 per cent chance of one in the next 12 months.
US spot power and natural gas prices soared to their highest in over a year in some US regions as Americans cranked up air conditioners during a spring heatwave.
MSCI’s gauge of stocks across the globe fell 0.65 per cent and the pan-European STOXX 600 index lost 1.37 per cent.
The S&P 500 is down about 18 per cent from its record close on January 3, and MSCI’s index has fallen the same since peaking on January 4.
Germany’s 10-year bond yield fell below one per cent and US Treasury yields fell as more soft US economic data stirred worries the Federal Reserve’s aggressive monetary tightening could hurt the global economy.
The yield on 10-year Treasury notes fell 3.8 basis points to 2.846 per cent, after hitting a three-week low of 2.772 per cent.
The dollar fell across the board, pulling back further from a two-decade high, as most other major currencies drew buyers.
The dollar index fell 0.896 per cent, with the euro up 1.11 per cent to US$1.0582. The Japanese yen strengthened 0.35 per cent to 127.79 per dollar.
The Swiss franc gained after Swiss National Bank president Thomas Jordan signaled on Wednesday the SNB was ready to act if inflation pressures continued.
Central banks have been walking a tightrope, trying to regain control of decades-high inflation without causing painful recessions.
“We will have to discuss what we can do together in our respective areas of responsibility to avoid stagflation scenarios,” German finance minister Christian Lindner said as he arrived for a two-day meeting of top central bankers near Bonn.
Oil prices rebounded from two days of losses in a volatile session, bolstered by weakness in the dollar and expectations that China could ease some lockdown restrictions that could boost demand.
US crude futures rose US$2.62 to settle at US$112.21 a barrel. Brent settled up US$2.93 at US$112.04 a barrel.
US gold futures settled up 1.4 per cent at US$1,841.20 an ounce, as a weaker dollar and Treasury yields burnished bullion’s safe-haven appeal.