Stocks fell with equity futures Thursday after high US inflation bolstered the case for aggressive monetary tightening, deepening fears of an economic slowdown. Sinking cryptocurrencies exacerbated risk aversion.

A global share gauge stepped closer to a bear market decline of 20% from a November high. European futures shed 2% and US contracts retreated. The S&P 500 Wednesday hit the lowest level since March 2021.

Treasuries rallied amid a flatter yield curve on concerns that Federal Reserve monetary tightening will trigger an economic slowdown. The 10-year US yield slipped to 2.85%, the dollar rose and oil dipped.

Digital tokens plunged anew, victims of ebbing liquidity and evaporating demand for speculative assets. Bitcoin is down more than 20% this week.

US inflation moderated but topped expectations at 8.3%, signaling persistent price pressures. Traders raised bets the Fed will roll out another half-point interest-rate hike in September following similar increases in June and July. Russia’s war in Ukraine and China’s Covid lockdowns are creating shortages and stoking costs.

For equities, “we’re seeing the beginning of the capitulation and the great reset, if you want, in pricing,” Virginie Maisonneuve, global chief investment officer for equity at Allianz Global Investors UK, said on Bloomberg Television. “Right now the big question is peak inflation.”

Fed officials appear to be sticking with their approach of raising rates by a half point at each of their next two meetings. But Fed Bank of Atlanta President Raphael Bostic said he’s open to boosting borrowing costs to restrict economic growth if inflation persists at elevated levels.

All About Inflation

“Until we get a meaningful move lower in inflation, not only one print, but a consistent two, three, four prints moving in the right direction, this market may remain range bound,” Mona Mahajan, senior investment strategist at Edward Jones & Co., said on Bloomberg Television.

In China, the central bank is making stabilizing economic growth a top priority and will step up support for weak sectors, Deputy Governor Chen Yulu said. Covid outbreaks there are sapping growth and snarling global supply chains.

Source:
courtesy of BLOOMBERG

by Andreea Papuc

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