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Global stocks slid and Treasury yields rose on Wednesday as firmer crude prices and strong economic data from the US raised traders’ concerns that high inflation could stick around for longer.
Wall Street’s benchmark S&P 500 lost 0.8 per cent and the tech-focused Nasdaq Composite declined 1 per cent, with both indices extending losses from the previous session.
In Europe, the region-wide Stoxx Europe 600 ended the day 0.6 per cent lower, marking its sixth successive day of declines. France’s Cac 40 gave up 0.8 per cent and Germany’s Dax lost 0.2 per cent.
Crude oil prices rebounded from morning declines as investors worried about the impact of moves by Saudi Arabia and Russia to extend their voluntary supply cuts until the end of the year. On Tuesday, oil prices jumped to their highest level since November last year.
Brent crude was up 0.1 per cent at $90.14 and US equivalent West Texas Intermediate was up 0.3 per cent to $86.95 a barrel.
Saudi Arabia, which leads the expanded Opec+ cartel with Russia, has cut an additional 1mn barrels a day from the global market since July, in what was originally billed as a temporary measure. Russia said its 300,000 b/d export reduction would also stay in place until December.
“While oil prices have rallied recently, oil markets look likely to remain in deficit over the upcoming months, and we still see scope for crude oil prices to rise further,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
As two of the world’s largest oil producers strive to boost prices, the move threatens to reignite inflation pressures globally, raising investors’ concerns over what this means for central banks’ policy tightening campaigns.
Rising oil prices hit stock markets in China — the world’s largest importer of the fossil fuel — where the benchmark CSI 300 fell 0.2 per cent.
The global equity sell-off extended after the US Institute for Supply Management reported that its service-sector purchasing managers’ index rose to 54.5 last month, the highest reading since February and well above analysts’ forecasts.
The data added to signs that the US economy remained resilient to rising interest rates, amplifying investors’ fears that the Federal Reserve will keep policy tight for longer in order to cool the economy.
The dollar rose 0.1 per cent against a basket of six peer currencies on Wednesday, trading at its highest level since March when a crisis in the banking sector pushed investors towards the haven currency.
In government debt markets, yields on policy-sensitive, two-year US Treasuries added 0.06 percentage points to 5 per cent, while yields on the 10-year bonds rose 0.03 percentage points to 4.29 per cent. Bond yields rise as prices fall.
“The US economy’s resilience appears to have led to a reappraisal of how soon the US Federal Reserve might start to ease policy, driving up real interest rates, which in turn has weighed on equities,” said Luca Paolini, chief strategist at Pictet Asset Management.
The same could not be said for Europe, where a string of weak business surveys earlier this week stoked investors’ fears of a looming economic slowdown.
Banks and consumer cyclicals led decliners in the region, with the Stoxx Europe 600 Financial Services index down 0.6 per cent. In the US, the KBW Bank index was down 1.6 per cent.
A day earlier, the eurozone-wide composite purchasing managers’ index came in below market expectations, adding to signs that the single-currency bloc is struggling under the weight of high interest rates.
The reading offered “more evidence for increasingly weak growth in Europe ahead of the ECB’s decision next week, and will only add to the fears of stagflation”, said Deutsche Bank strategist Jim Reid.
