Global Markets: Wall Street gulps as U.S. inflation tops 9%, euro pierces parity

USU Ventures AG

13/07/2022 21:55

* Highest U.S. inflation since 1981 takes euro to dollar
parity
    * Stocks drop, copper at 20-month low on recession concerns
    * Bond markets nursing U.S. curve inversion 
    * Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
    * Graphic: World FX rates http://tmsnrt.rs/2egbfVh

    By Katanga Johnson and Marc Jones
    WASHINGTON/LONDON, July 13 (Reuters) - World equities
wavered on Wednesday as investors digested a report showing U.S.
annual consumer prices jumped 9.1% in June -the largest increase
in more than four decades - leaving Americans to dig deeper to
pay for gasoline, food, healthcare and rent.
    Markets swung wildly as the euro touched 1-to-1 versus the
dollar for the first time in 20 years, as investors also feared
more supersized Fed rate hikes could be on the way. 
    The U.S. Federal Reserve is expected to deliver a rate hike
of possibly up to 100 basis points this month after a mostly
grim inflation report showed price pressures, already running at
a 40-year high, accelerating further.  urn:newsml:reuters.com:*:nL1N2YU18B
    A bevy of central bankers over the past couple of weeks had
signaled they would support what would be a second straight 75
basis-point rate increase at their upcoming policy meeting on
July 26-27.
    But after Wednesday's data from the Labor Department showed
rising costs of gas, food and rent drove the consumer price
index (CPI) up 9.1% last month from a year earlier, the view may
have changed.  urn:newsml:reuters.com:*:nL1N2YT184
    Recession worries had already caused Europe's bourses to
stumble  .EU , but the headline CPI number was even higher than
most economists had forecast.  urn:newsml:reuters.com:*:nL1N2YT184
    The pan-European STOXX 600 index  .STOXX  lost 1.01% and
MSCI's gauge of stocks across the globe  .MIWD00000PUS  shed
0.31%.
    U.S. stocks closed modestly lower on Wednesday after
investors digested the hotter-than-expected U.S. inflation data.
While all three major U.S. equity indexes bounced off lows
reached early in the day, and occasionally edged into positive
territory throughout the session, they were all red by the
closing bell.
    The Dow Jones Industrial Average  .DJI  fell 0.67%, the S&P
500  .SPX  lost 0.45%, and the Nasdaq Composite  .IXIC  dropped
0.15%.
    The Bank of Canada on Wednesday raised its main interest
rate by 100 basis points in a bid to crush inflation, surprising
markets and becoming the first G7 country to make such an
aggressive hike in this economic cycle.  urn:newsml:reuters.com:*:nL1N2YU0PO
    The euro only briefly brushed parity but it was enough.   
 FRX/  Germany's DAX  .GDAXI  and France's CAC40  .FCHI  nearly
doubled their morning losses to 1.5% and 1.4% respectively.
London's FTSE  .FTSE  was not far behind  .EU  as another 4%
rise in gas prices added to the pressures.  TRNLTTFMc1 
 /FRX  O/R 
    "CPI of 9.1% is the highest number in 40 odd years, the only
piece of good news is that core inflation is slightly lower,"
said Close Brothers Asset Management Chief Investment Officer
Robert Alster.  
    "And euro parity - well, European economic prospects
continue to get worse, especially if the Russian gas doesn't
start coming come through again." 
    Korea and New Zealand had jacked up their rates too
overnight. UK economic growth data did deliver an unexpected
rise but investors were far more focused on how fast and
furiously the Fed now moves.  urn:newsml:reuters.com:*:nL1N2YS1C7  urn:newsml:reuters.com:*:nL8N2YU149
 urn:newsml:reuters.com:*:nL4N2YN15F 
    "Markets have been held up a bit in terms of parity in
euro-dollar but we still have an incredible number of moving
parts," Societe Generale's Kit Juckes said, explaining that the
higher the U.S. inflation numbers, the clearer it will be that
the Fed will crack on with rate hikes.     
   Fixed income markets were left anxious. The yield on 10-year
Treasury notes  US10YT=RR  - the benchmark for global borrowing
costs  US10YT=RR  - was down 5 basis points to 2.908% as
investors also digested the International Monetary Fund's latest
U.S. growth forecast cut.  urn:newsml:reuters.com:*:nL1N2YT2JW 
    German government bond yields edged up to 1.15%, after
falling sharply for two days  DE10YT=RR , while 10-year Italian
yields  IT10YT=RR  climbed to 3.27%.  GVD/EUR  
    Bond market recessionary warning signs were already flashing
"with growing alarm" Deutsche Bank's Jim Reid said. One in
particular is the 2 year/10 year U.S. Treasury curve, which has
inverted before every one of the last 10 U.S. recessions, and
remains near its most inverted of this cycle so far at -16 bps.
   
    PARITY WATCH
    MSCI's broadest index of Asia-Pacific shares outside Japan
 .MIAPJ0000PUS  closed 0.43% higher, while Japan's Nikkei
 .N225  rose 0.54%.  .T 
    Taiwanese stocks led the gains after Taiwan's finance
ministry said on Tuesday evening it would activate its stock
stabilisation fund. The market  .TWII  had fallen to a 19-month
low that day. 
    "Sharp weakness in oil prices in July suggests that June's
(inflation) may mark a peak, however. If so, the most dynamic
phase of Fed tightening could conclude with a 75bps rate rise on
27 July," analysts at ANZ had said. 
    Worries that higher rates could bring the global economy to
a standstill, or even worse into recession, have been the key
driver behind both the 20% slump in world stocks this year and
the surge in the safe-haven U.S. dollar.
    The dollar was also firm on other peers earlier in the
session, but its index  =USD  measure against major rivals
recently fell 0.148%, with the euro  EUR=  up 0.17% to $1.0053.
    U.S. crude  CLc1  recently rose 0.06% to $95.90 per barrel
and Brent  LCOc1  was at $99.31, down 0.18% on the day.
    Leading cryptocurrency bitcoin  BTC=  meanwhile last rose
1.74% to $19,656.85.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
World FX rates YTD    http://tmsnrt.rs/2egbfVh
Global asset performance    http://tmsnrt.rs/2yaDPgn
Euro pulled towards parity    https://tmsnrt.rs/3NYD942
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Katanga Johnson in Washington and Marc Jones in
London
Additional reporting by Alun John in Hong Kong and Sam Byford in
Tokyo; 
Editing by Jonathan Oatis and Matthew Lewis)
 ((Katanga.Johnson@tr.com
202.579.4165
@kjspeakstruth))
 
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