Stocks slide on inflation fears as oil prices rise further

  • Investors prepare for a tightening of monetary policy
  • Oil hits 7-year high after pipeline shutdown in Turkey
  • Nasdaq confirms correction as Wall Street slips
  • Bond yields slip after previous session’s big jump

NEW YORK/LONDON, Jan 19 (Reuters) – Strong U.S. and European corporate results could not halt a slide on Wall Street, where the Nasdaq entered a correction as rising crude prices kept concerns on inflation even though bond yields have fallen slightly after hitting new multi-year highs.

The Nasdaq closed down more than 10% from its November 19 closing record to confirm a correction as investors continue to assess the Federal Reserve accelerating interest rate hikes, fears that have led to Tuesday’s selloff.

Stock markets on both sides of the Atlantic initially rebounded, with an index of Europe’s 600 largest stocks up 0.8% as strong earnings from luxury majors Burberry (BRBY.L) and Richemont countered the pressure of increased yields. Dynamic reports from UnitedHealth Group Inc (UNH.N) and Procter & Gamble Co (PG.N) also initially lifted Wall Street.

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But the gains faded as worries about rising inflation and rising rates rattled the market as investors await the Fed’s policy meeting next week for any changes to the central bank’s plan to fight against inflation.

“The market is still grappling with how you adjust to higher rates and which companies are affected by higher rates?” said Jon Maier, chief investment officer at Global X ETFs.

“The market was very excited that Goldman Sachs (earnings) numbers (Tuesday) might not be so bad. Then reality set in.”

The broad STOXX Europe 600 index (.STOXX) closed up 0.23%, but MSCI’s all-country world index (.MIWD00000PUS) fell 0.74% as Wall Street sold off late in the month. session.

The Dow Jones Industrial Average (.DJI) fell 0.96%, the S&P 500 (.SPX) 0.97% and the Nasdaq Composite (.IXIC) 1.15%.

U.S. Treasury yields earlier hit new two-year highs, and Germany’s 10-year yield moved into positive territory for the first time since May 2019, with investors betting policymakers will cap years of stimulus to combat rising asset prices.

The rise above 0% for the bund – the eurozone’s benchmark – marks a turning point for regional debt, reflecting record inflation exacerbated by supply chain disruption.

“This inflationary episode is unusually difficult as it is driven by both strong demand and supply shortages,” said Guy Foster, chief strategist at wealth manager Brewin Dolphin.

Oil prices rose to their highest level since 2014 amid a breakdown of a pipeline linking Iraq to Turkey and global political tensions that fueled fears of more persistent inflation and helped support the dollar , which was close to one-week highs.

The market is making interest rate adjustments in major industrialized economies, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“Those countries that appear to be ahead of the United States in the queue to raise ratings – Canada, the United Kingdom and Norway – have stronger currencies this year against the dollar,” he said. he declared. “Other areas like the euro, the Swiss franc are softer over the year.”

The dollar index, which tracks the greenback against a basket of six currencies, fell 0.14% to 95.579. The euro was last up 0.16% at $1.1343, while the yen was last down 0.29% at $114.2800.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.4%, as tech stocks in particular suffered as they did on Tuesday in Europe and on Wall Street.

Australia’s main stock index (.AXJO) lost 1.0%, while Japan’s Nikkei (.N225) hit a three-month low on concerns over new restrictions on businesses to halt a record rise in coronavirus cases. coronavirus have dampened risk appetite. Read more

The two-year US Treasury yield, which generally moves in line with interest rate expectations, rose 0.7 basis points to 1.047% in late trading after falling earlier. The yield on 10-year Treasury notes fell 1.8 basis points to 1.850%, after also trading lower.

Oil prices rose for a fourth day after a fire on a pipeline linking Iraq to Turkey briefly halted flows, heightening concerns over an already tight short-term supply outlook.

Brent crude futures settled 93 cents at $88.44 a barrel. The international benchmark has gained 28% since the beginning of December. U.S. crude futures rose $1.53 to settle at $86.96 a barrel.

Gold rose more than 1% as the dollar retreated and geopolitical tensions surrounding Ukraine boosted the appeal of safe-haven bullion.

US gold futures rose 1.7% to $1,843.20 an ounce.

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Reporting by Herbert Lash; additional reporting by Lawrence White in London and Daniel Leussink in Tokyo; edited by Kim Coghill, Simon Cameron-Moore, Emelia Sithole-Matarise, William Maclean and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

Steve R. Hansen