Global sell-off extends to longest losing streak in two months

Surging commodity prices, growing inflationary pressure prompts bets on earlier interest rate hikes

Photograph: iStock

Photograph: iStock

 

A sell-off in global shares extended to its longest losing streak in two months on Wednesday as surging commodity prices and growing inflationary pressure in the United States prompted bets on earlier interest rate hikes and higher bond yields.

A subdued recovery emerged in European equity markets, with the continent’s Stoxx 600 index adding 0.3 per cent after Tuesday’s slump. Sentiment was aided by comments from the European Commission that the euro zone will rebound from its Covid-19 slump more than expected and data showing Britain’s pandemic-battered economy grew more strongly than anticipated in March.

MSCI’s broadest index of Asia-Pacific shares outside Japan slumped 0.8 per cent, having earlier touched its lowest since March 26th. After hitting fresh record highs earlier in the week, MSCI’s gauge of stocks across the globe was 0.2 per cent down, its third consecutive day of losses, the longest-running streak since March 4th.

Investor focus was locked on the US consumer price index report to be released by the US Labor Department at 1230 GMT, with analysts expecting a 3.6 per cent lift in year-on-year prices, boosted by last April’s low base.

US Treasury yields remained stuck in a tight range. The yield on benchmark 10-year Treasuries drifted lower to 1.6183 per cent, below the recent peaks of late March and far from the 1.9 per cent level at the start of 2020 before the coronavirus pandemic.

Euro zone bond yields held below recent highs touched on Tuesday. Germany’s 10-year yield was down 1 basis point to -0.17 per cent, after rising to the highest since March 2020 at -0.152 per cent on Tuesday.

Analysts said a combination of inflation fears and some investors cutting their exposure to overstretched stocks or sectors was behind the recent downturn.

Japan’s Nikkei reversed early gains to shed 1.9 per cent, while Taiwan’s benchmark index fell as much as 6 per cent from all-time highs to levels seen in February on fears it may raise its Covid-19 alert level in coming days, which would lead to closure of shops dealing in non-essential items as infections rise.

E-mini futures for the S&P 500 stumbled 0.4 per cent while futures for the tech-heavy Nasdaq were down 0.6 per cent.

Analysts, however, doubted the broader equities sell-off would extend much further in a world of easy accommodative policy and fiscal largesse. “Despite the severity of the moves, we sensed limited panic in our client conversations with many using (the) weakness as an opportunity to buy the dip, particularly in the value orientated areas e.g. banks, energy and insurance,” JPMorgan analysts wrote in a note.

The equity rout barely helped drive any safe haven flows into the greenback even as futures pointed to another negative open for Wall Street. “What is unusual about the last two days is that the equity-market angst did not provide the U.S. dollar with a notable lift,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. The dollar hovered near a 2-1/2-month low versus major peers, as traders clung on to bets that the Federal Reserve would remain steadfast in its easy policy settings ahead of the release of the US consumer price index data expected to show a sharp rise in annual US inflation. – Reuters