Equities are falling due to growth concerns, bond yields are falling

NEW YORK / LONDON, May 24 (Reuters) – Shares fell worldwide on Tuesday as supply chain problems and rising costs hurt corporate earnings and reduced production output, while government interest rates fell as stock weakness revived a safe haven bid for US government debt.

Business activity in the US and the eurozone slowed in May, and S&P Global attributed the decline in its US composite PMI output to “increased inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth.”

Higher costs from rising shipping and commodity prices led Abercrombie & Fitch Co (ANF.N) to say it will continue to face headwinds until at least the turn of the year, a day after Snapchat parent Snap Inc (SNAP.N) said the US the economy had deteriorated faster than expected in april. read more

A two-day easing in equities was halted as investors noticed declining corporate profits on persistent supply chain problems, exacerbated by the Ukraine war, and rising inflation that has forced consumers to cut discretionary spending.

The US economy is likely to decline sharply as the Federal Reserve raises interest rates to stop inflation, according to David Petrosinelli, a senior trader at InspereX.

“It’s really about a hard landing and that the Fed is really being boxed in the corner with only tools on the demand side to help,” Petrosinelli said. “They really need to curb demand.

“This is going to have a ripple effect on the economy, and that’s why you are seeing the price movement in stocks and bonds,” he said.

MSCI’s target for stocks across the globe (.MIWD00000PUS) fell 1.69%, while the pan-European STOXX 600 index (.STOXX) lost 0.99%.

On Wall Street, the Dow Jones Industrial Average (.DJI) fell 1.37%, the Nasdaq Composite (.IXIC) fell 3.33% and the S&P 500 (.SPX) lost 2.16% as it again headed for a bear market.

Shares of Snap fell 41.1%, pulling down more social media and internet stocks, while Abercrombie fell 29%.

In Europe, tools (.SX6P) and commodity-related stocks (.SXPP), (.SXEP) declined, but bank stocks rose.

European Central Bank Governor Christine Lagarde said she saw the ECB’s deposit rate of zero or “slightly above” by the end of September, an increase of at least 50 basis points from the current level.

The comments came the day after Lagarde accelerated a political turnaround operation that has led her to go from almost excluding a move this year to drawing more trips.

“It has created unrest in global markets about the possibility of at least a more aggressive move by the ECB,” said Phil Shaw, chief economist at Investec in London.

“There were reports overnight that some hawks on the board thought her comments yesterday seemed to rule out a 50 basis point increase, but her statements today seemed to leave it on the table,” he said.

Germany’s 10-year Bund interest rate fell 7.3 basis points to 0.951%.

Treasury yields fell to a one-month low when the benchmark index for 10-year government bonds fell 13 basis points to 2.729%.

The dollar index fell 0.343%, with the euro up 0.38% to $ 1,073.

Lagarde’s comments in a blog post on Monday and a swing that pushed the US currency to peaks in two decades reinforced the tactical weakness of the dollar, said Bipan Rai, North America’s head of currency strategy at CIBC Capital Markets.

“The wider macro backdrop still supports the risk,” Rai said. “The dollar still has more room to run in the medium term.”

DISAPPOINTING DATA

The markets received some consolation from US President Joe Biden’s comment on Monday that he was considering easing tariffs on China, and from Beijing’s continued promises of stimulus. read more

Unfortunately, China’s zero-COVID-19 policy and its shutdowns have already done significant economic damage.

JPMorgan cut its forecast for the second quarter of Chinese gross domestic product to -5.4% from the previous -1.5% after disappointing data in April. On an annual basis, its global forecast for the quarter is 0.6%, the weakest since the major financial crisis outside 2020.

U.S. crude oil recently fell 0.05% to $ 110.23 a barrel and Brent was at $ 113.76, up 0.3% on the day.

Spot gold increased 0.8% to $ 1,867.57 per ounce.

Reporting by Herbert Lash in New York and Lawrence White in London; additional reporting by Wayne Cole in Sydney; editing by Simon Cameron-Moore and Jonathan Oatis

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