Global shares stumble as investors worry about inflation

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US and European stock markets moved lower on Monday as investors’ concerns rose that central banks on either side of the Atlantic would move more aggressively than expected to tame soaring inflation.

Wall Street’s benchmark S&P 500 index fell 1.2 per cent while the tech-heavy Nasdaq Composite was down 1.7 per cent.

The regional Stoxx Europe 600 index lost 0.6 per cent and Germany’s Dax fell 0.6 per cent. France’s Cac 40 benchmark proved a rare bright spot, ending the day 0.1 per cent higher after polls suggested incumbent Emmanuel Macron would face far-right rival Marine Le Pen in the final round of the French presidential election in two weeks, following Sunday’s first round of voting.

Investors remained wary of the impact of inflation on the global economy and higher interest rates. UK gross domestic product barely expanded in February, raising fears of further weakness. London’s FTSE 100 fell 0.7 per cent.

In government debt markets, the yield on the 10-year US Treasury note, which underpins global borrowing costs, rose 0.05 percentage points to 2.77 per cent, its highest level since early 2019. The two-year Treasury yield fell 0.01 percentage points to 2.5 per cent.

Yields on the 10-year German Bund, a proxy for European borrowing costs, rose 0.1 percentage points to 0.81 per cent to its highest level since mid-2015. Yields rise when prices fall.

Mike Zigmont, head of trading and research at Harvest Volatility Management in the US, said the S&P 500’s poor performance last week “ruined the mood” of even the most optimistic investors, or “permabulls”.

“Throw in the fact that yields are higher across the curve again and you’ve got a bearish environment”, he added. “Yields are just climbing, climbing, climbing and the wide-eye equity optimists can’t dismiss it any more.”

Adding to the downbeat mood, the Bank of Israel raised its benchmark rate for the first time in more than three years. The move from 0.1 per cent to 0.35 per cent was more than had been expected.

French markets were steady following the first round of the election. Emmanuel Cau, head of European equity strategy at Barclays, predicted that markets would “likely be more relaxed” in the lead-up to the final round of voting if Macron polled above 25 per cent in the first stage of the election.

The yield on the French 10-year government note added 0.06 percentage points. The spread between it and German debt — a measure of the perceived riskiness of holding French debt — is hovering close to the highest level since the first months of the coronavirus pandemic and would probably widen further if polls suggested a Le Pen victory on April 24, said Joost Van Leenders, senior portfolio manager at Kempen Capital Management.

The euro traded flat against the dollar after rallying earlier in the day. “Overall, this is largely an as-expected result which will remove tension from the currency market and provide a bit of relief to the euro,” said Stephen Gallo, European head of forex strategy at BMO.

Oil prices dropped by more than 4 per cent, with Brent crude less than $100 a barrel on plans to release record volumes of oil from strategic reserves and coronavirus lockdowns in China. West Texas Intermediate, the US oil marker, dropped to less than $95 a barrel.

The oil market has given up most of the gains that followed Russia’s invasion of Ukraine in late February after a period of extremely volatile trading that has seen the number of active futures contracts on Brent — also known as open interest — fall sharply.

“Continued Covid lockdowns in China, along with the co-ordinated US and IEA stock releases, are fuelling the capitulation in oil markets,” said Bart Melek, head of commodity strategy at TD Securities. “These forces have combined to ease immediate short-term pressures experienced from self-sanctioned Russian barrels.”

In Asia, the Hang Seng China Enterprises index of mainland Chinese stocks slipped 3.8 per cent and China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed shares shed 3.1 per cent as the impact of lockdowns imposed on Shanghai to limit the spread of Covid began to weigh on economic activity.

The broader Hang Seng index fell 3 per cent and the Hang Seng Tech dropped 5.2 per cent.

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