Stocks and bonds under pressure after gloomy UK inflation data

Stocks and bonds under pressure after gloomy UK inflation data

Stocks and bonds under pressure after gloomy UK inflation data

Stocks and bonds came under pressure on Wednesday after disappointing earnings from US retailer Target weighed on market sentiment already clouded by worse-than-expected UK inflation data.

Wall Street’s S&P 500 stock index was down 1.1 percent at midday in New York, with travel companies among the biggest losers. Shares of cruise ships Carnival, Norwegian Cruise Line Holdings and Royal Caribbean Cruises fell more than 6 percent.

Target shares fell nearly 5 percent after the US retailer missed earnings expectations for the three months to July 30 as its chief executive spoke of a “very challenging environment.” The group’s figures were released just a day after earnings reports from retail benchmark Walmart and DIY store chain Home Depot indicated some resilience in consumer spending despite inflationary pressures weighing on customers.

The tech-heavy Nasdaq Composite Gauge lost 1.7 percent on Wednesday.

Those moves came as investors weighed in on another flurry of economic data, beginning with higher-than-feared inflation figures for the UK. The country’s consumer price index posted a 10.1 percent year-on-year increase in July, higher than June’s figure of 9.4 percent and above economists’ consensus forecast of a 9.8 percent increase. percent.

The UK figures caused a drop in the country’s short-term debt, which is sensitive to changes in interest rate expectations, as investors raised their estimates of how much the Bank of England would raise borrowing costs. to curb the rapid rise in prices.

The two-year gilt yield rose as much as 0.3 percentage point to 2.45%, its highest level since the 2008 global financial crisis. The 10-year gilt yield rose as much as 0.19 percentage point to 2.32%. Bond yields rise when their prices fall.

That sale rippled through other countries’ debt markets, with the two-year German Bund yield rising as much as 0.17 percentage point to 0.75 percent. The equivalent US yield also rose, adding 0.1 percentage point to 3.35 percent. The yield on the 10-year US Treasury note, a gauge of borrowing costs around the world, rose 0.09 percentage point to 2.92 percent.

Low summer trading volumes exacerbated gilts’ moves, said Lyn Graham-Taylor, a rate strategist at Rabobank. “Gilts have sold more than I expected given the news. The size of that move has dragged down Bunds and Treasuries with it.”

He said bond markets could sell further, adding: “Central banks are less likely to blink at diminishing growth prospects than the market price.”

The gloomy UK inflation figures came just a week after US data indicated the rate of growth in consumer prices may be leveling off in the world’s largest economy.

Separate figures released on Wednesday showed U.S. retail sales were flat month-on-month in July, due to a drop in spending at gas stations as oil prices fell.

Elsewhere in stock markets, Europe’s regional Stoxx 600 closed down 0.9 percent, while Germany’s Dax fell 2 percent. In Asia, Japan’s Topix index closed 1.3 percent higher, while Hong Kong’s Hang Seng rose 0.5 percent.

Later in the session, investors will examine the minutes of the latest US Federal Reserve monetary policy meeting for more clues on the central bank’s strategy to tackle inflation.

“Not all eyes are going to be on the UK today,” said Florian Ielpo, head of macro at Lombard Odier. They are going to be in the Fed minutes. If anyone is ahead in the fight against inflation, it is the Fed.”

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