Risk appetite took another hit Wednesday as a surprisingly high reading for US consumer prices fed inflation worries and pushed up market interest rates. The Dow Jones industrial average fell 2.0 percent, the S&P 500 lost 2.1 percent, and the NASDAQ dropped 2.7 percent, with losses accelerating into the close.
Consumer prices surged 0.8 percent in April, far more than the 0.2 percent Econoday consensus expectation, lifting the 12-month rate to 4.2 percent, topping even the highest forecast of 3.8 percent. The 12-month gain was the largest since September 2008.
Afterwards, Fed officials continued to downplay concerns over inflation as Fed Vice Chair Richard Clarida and Atlanta Fed President Raphael Bostic both repeated that the uptick would prove transitory and inflation would recede toward the 2 percent target next year. They also pledged to use the Fed's tools aggressively if the economy shows persistent signs of overheating.
High-multiple growth and momentum stocks suffered the most, with the FANMAG complex leading the declines, as these stocks are seen most vulnerable to repricing when interest rates rise. Tech, communications services, and consumer discretionary stocks all lagged. Chipmakers and software weighed on tech. In tech, Apple fell 2.5 percent, and did not bounce much, to dishearten bulls. Tesla, down 4.4 percent, and Amazon, down 2.2 percent, were big losers in consumer discretionary.
The selloff extended to cyclical reopening plays, including restaurants and travel & leisure. Industrials lagged, as did materials, as industrial metals retreated. Financials held up better, with banks helped by rising interest rates. Consumer staples and health care outperformed, and energy topped the winners as oil prices gained. Among Dow movers, Honeywell, the industrial conglomerate, fell 5.5 percent, and Home Depot dropped 4.1 percent, while Chevron rose 0.6 percent.
On the positive side, fubo TV jumped 10 percent after topping revenue expectations and issuing better guidance. Domino's Pizza rose 0.7 percent on news that Pershing Square had taken a big stake.
These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 42 cents to US$69.02 while spot gold fell US$16.76 to US$1,821.49. The US dollar rose sharply vs. most major currencies. The US Treasury 30-year bond yield rose 6 basis points to 2.41 percent and the 10-year note yield rose 8 basis points to 1.70 percent.
Rising oil prices helped equities end mostly better Wednesday in a mixed showing as gains were limited by inflation worries and divergent company news. The Europe-wide STOXX 600 firmed 0.3 percent, the German DAX and the French CAC both rose 0.2 percent, and the UK FTSE was up 0.8 percent.
Energy stocks led the winners as oil prices rose on an International Energy Agency report that demand is already topping supply, and a similar forecast from OPEC projecting a strong recovery in oil demand this year. Heavyweight Royal Dutch Shell gained 3.3 percent and BP rose 3.5 percent. Other sectors outperforming included health care, food & beverage, banks, telecom, basic resources, and insurance. Lagging were technology, industrials, retail, travel & leisure, chemicals, and real estate.
Among companies in the news, Commerzbank rose 8 percent after topping earnings and revenue expectations. Ahold Delhaize, the Dutch supermarket chain, rose 3.6 percent on an earnings beat. Diageo, the drinks giant, rose 4.2 percent on an earnings beat. On the downside, earnings misses hurt Hapag-Lloyd, the shipping company, down 13 percent and Lanxess, the chemicals maker, off 2 percent. Leoni, the cable manufacturer, fell 5 percent on disappointing results. Carnival, the cruise line, fell 1.4 percent amid uncertainty over its plans to resume sailing.
In economic news, UK GDP in the first quarter fell 1.5 percent from the fourth quarter as household consumption fell during the quarter's lockdowns. Separately, UK industrial production expanded 1.8 percent in March from February, its best performance since July last year and, helped by very positive base effects, a large enough increase to lift annual growth from minus 3.5 percent to plus 3.6 percent. Meanwhile, Eurozone industrial production figures came in on the soft side relative to expectations with a minimal 0.1 percent rise on the month in March.
The global tech selloff and Covid worries hit Asian markets Wednesday, especially Taiwan, but mainland China managed gains for a second straight day on news the US would lift its investment ban against Chinese smartphone maker Xiaomi.
The global market inflation scare and nerves ahead of US CPI figures contributed to the growth/tech stock weakness, along with rising commodities prices, the focus on US labor shortages, and global supply disruptions. The tech stock selloff and fear of more pandemic lockdowns hit South Korea, Taiwan, and Japan in particular, while Australia ended down on weakness in energy stocks.
Taiwan's markets dropped after Taiwan reported its biggest-ever daily rise in Covid cases, and the government said it may impose new restrictions in response. The benchmark Taiex stock index ended down 4.1 percent after being down about 8 percent in the morning. The tech-heavy market is seen as heavily-leveraged, highly-valued, and especially vulnerable to rising interest rates. Among stock in focus, Taiwan Semiconductor, the world's biggest chipmaker, fell 1.9 after being down nearly 10 percent earlier.
China's Shanghai composite rose 0.6 percent and the CSI 300 gained 0.4 percent as China outperformed. Growth outperformed value. Most sectors rose, with healthcare joining tech and telecom while utilities and industrials lagged.
Bargain-hunting in tech stocks lifted Hong Kong's Hang Seng 0.8 percent with tech giants Alibaba up 6.1 percent, Meituan up 2.5 percent, along with telecom equipment maker Xiaomi up 6 percent. Lagging were financials and property shares.
Worries about rising inflation and interest rates hit Japanese stocks for a second day with the Nikkei down 1.6 percent and the Topix off 1.5 percent, with losses nearly across the board. Biggest losers included marine transportation, oil & coal, and iron & steel, along with banks. Worries about rising Covid-19 cases across much of Asia added to doubts about Japan's economic recovery.
Meanwhile, investors were disappointed that the Bank of Japan has not stepped up purchases of ETFs to support the market. Nissan, the automaker, was a featured decliner, down 10 percent on much weaker-than-expected guidance in light of rising commodities prices and chip shortages.
Australia's markets slipped with the All Ordinaries off 0.7 percent, with most sectors down. Utilities, energy, industrials, materials, and consumer staples lagged the most, and information technology and telecoms outperformed. Australia's budget plans are expansive as expected, but attention focused on lack of clarity in vaccine plans and a delayed opening to international borders, which hit travel stocks. Qantas fell 3.4 percent after delaying the resumption of international flights. On the positive side, CSR, the industrial conglomerate, rose 4.2 percent on an earnings beat, while Ausnet, the energy company, fell 7.7 percent on disappointing results.
On Thursday, no major data releases are scheduled in Asia-Pacific and Europe. In North America, reports are scheduled on US jobless claims and PPI-FD.