Stocks slide amid worries over inflation, economic growth

BLOOMBERG

Stocks and US index futures dropped as hawkish messages from the New Zealand and Australian central banks signalled a prolonged fight against inflation and revived concerns about an economic slowdown.
Contracts on the S&P 500 Index slipped 0.2% and Europe’s Stoxx 600 declined for a third day. Gold traded near a 13-month high, while Treasury yields rose.
Nvidia Corp slid 1.6% in US premarket trading as traders weighed Japan’s decision to join a US alliance to restrict chip-making exports to China. Sodexo SA, a provider of catering services, jumped 11% in Paris after announcing plans to spin off its benefits and rewards business.
The Reserve Bank of New Zealand surprised markets with a half-point interest rate hike, twice as much as forecast. Governor Adrian Orr said inflation is too high and that expectations for price increases may also remain elevated despite a weaker economy.
“The battle against inflation looks far from won,” said Ivailo Vesselinov, chief strategist at Emso Asset Management Ltd in London. “Notwithstanding the latest signs of softening economic activity, should disinflation hit a wall later this year, major central banks would struggle to validate the current market pricing for rate cuts.”
Markets in China, Hong Kong and Taiwan were shut for a holiday. The MSCI Asia Pacific Index dropped 0.6%, with Toyota Motor and Daiichi Sankyo contributing most to its losses.
Meanwhile, the two-year Treasury yield rose 5 basis points to 1.2%, after a 14 basis point drop. Swap contracts downgraded the odds of a quarter-point rate hike at the Federal Reserve’s May meeting to around 50%, compared with a peak of 70%.
“It’s a lot easier for central banks to clean up after a hawkish error than it is to try and correct a dovish error,” James Athey, investment director at Abrdn, said on Bloomberg TV. “If you allow inflation and inflation expectations to become unanchored, that’s an incredibly difficult and painful issue to deal with. If you hike too much in hindsight, then you’ve created a recession that was probably going to be the end result anyway and you can cut rates quickly to deal with that.”
The Stoxx Europe 600 fell 0.2% and S&P 500 futures fell 0.2%. The Nasdaq 100 futures fell 0.2% and futures on the Dow Jones Industrial Average also drop 0.1%. The MSCI Asia Pacific Index fell 0.6% and the MSCI Emerging Markets Index rose as much as 0.2%.
While the Bloomberg Dollar Spot Index rose 0.1%, the euro was little changed at $1.0949 and the Japanese yen was unchanged at 131.71 per dollar. The offshore yuan was little changed at 6.8814 per dollar and the British pound fell 0.2% to $1.2475.
The yield on 10-year Treasuries advanced three basis points to 3.36% and Germany’s 10-year yield advanced four basis points to 2.29%. Britain’s 10-year yield advanced six basis points to 3.50%
Brent crude fell 0.3% to $84.72 a barrel and spot gold was little changed.