United States
Equities tanked Thursday as the market resumed its recent pattern of selling into strength, and investors focused again on bearish fundamentals – slower growth, scary inflation, and much higher interest rates. Selling spurred more selling, and short-end US Treasuries saw a distinct flight to quality, even as long-end US Treasuries sold off and long-term yields spiked.
The Dow Jones industrial average sank 3.1 percent, the S&P 500 dropped 3.6 percent, and the NASDAQ an unsettling 5.0 percent.
Investors regretted Wednesday's initial bullish reaction to the Federal Reserve's policy announcement, including Fed Chair Jerome Powell's statement that 75 basis point rate increases were not under consideration. Powell's comments, after all, implied a very aggressive path of policy tightening, and conceded a very uncertain economic outlook.
Equities losses were across the board; heavily weighted megacaps and other growth stocks dropped the most including familiar names: Amazon down 7.6 percent, Apple down 5.6 percent, Microsoft down 4.7 percent, and Google down 4.8 percent. Also hit were consumer discretionary, communications services, and financials. Holding up best were defensive plays, including bond proxies, telecom, energy, and food.
Among companies in focus, e-commerce stocks had a terrible day on dismal guidance from Etsy, down 17 percent, and Ebay, off 12 percent, and Shopify off 15 percent.
News of an unexpectedly large 7.5 percent decline in US nonfarm productivity (the worst showing in 75 years) and a surprising 11.6 percent surge in unit labor costs added to the ugly inflation narrative that has captured the market's attention.
Among companies in focus, Twitter was a rare bright spot, up 2.7 percent after reports Elon Musk has secured new financing to help fund his takeover of the firm.
These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 29 cents to US$110.81 while spot gold fell US$5.25 to US$1,878.47. The US dollar rose sharply vs. most major currencies. The US Treasury 30-year bond yield rose 13 basis points at 3.13 percent while the 10-year note yield rose 14 basis points to 3.04 percent, both very sharp climbs.
Europe
Equities gave back early gains as losses on Wall Street weighed on European markets. The Europe-wide STOXX declined 0.7 percent, the German DAX fell 0.5 percent, the French CAC lost 0.4 percent, and the FTSE 100 was up 0.1 percent.
Most sectors declined with heavy losses in travel & leisure, banks, insurance, autos & parts, personal & household goods, retail, basic resources, financial services, and utilities. Holding up best were real estate, oil & gas, and health care.
On a busy earnings day, Airbus rallied 6.3 percent and Shell rose 2.3 percent, and AB Inbev gained 1.4 percent after posting earnings beats. Among autos, BMW fell 2.9 percent and Swiss Re lost 5.4 percent on earnings disappointment.
The Bank of England delivered a 25 basis point rate increase, as expected, though three members of its policy committee backed a more aggressive 50 basis point move. The bank warned of recession risk flowing from surging energy prices.
Asia Pacific
Asian equities ended mixed Thursday after markets gave back early gains inspired by the rally on Wall Street after the Federal Reserve policy news. Tokyo and Seoul remained on holiday.
Macro risk factors were split for Chinese equities. Positives included new pledges from the People's Bank of China to provide policy support and relief over Fed Chair Jerome Powell's comment appearing to rule out 75-basis-point rate increases ahead. Negatives included weak Chinese economic data, with the Chinese PMI services index dropping to 36.2 in April from an already anemic 42.0 in March.
China's CSI 300 index declined 0.2 percent and the Shanghai index managed to end up 0.7 percent. Hong Kong retreated with the Hang Seng index off 0.4 percent. Hong Kong big tech stocks with US listings suffered from news that the Securities and Exchange Commission added JD.com and more than 80 Chinese firms to its list of companies provisionally facing delisting in the US for failing to meet US audit rules.
Indian equities erased early gains to end nearly flat with the BSE Sensex up 0.1 percent. Wall Street's post-Fed rally lifted equities initially but selling returned as investors grapple with the threat of higher inflation and interest rates. The Sensex dropped 2.3 percent on Wednesday after the Reserve Bank of India's surprising rate increase.
Wall Street's tech rally and rising commodities lifted Australian equities with the All Ordinaries index up 1.0 percent. Tech, energy, utilities, and real estate investment trusts outperformed while financials, consumer staples, and telecom lagged.
Looking ahead*
In Asia/Pacific, Singapore PMI, Chinese merchandise trade, Taiwan CPI, and Reserve Bank of Australia statement on monetary policy are due. In Europe, Swiss unemployment rate, German industrial production, UK Halifax house prices, Italian retail sales, and UK PMI construction reports are on the schedule. In North America, US employment, US consumer credit, Canadian labour force survey, and Canadian Ivey PMI reports are on tap.
