Global Stocks Tumble Sharply Amid Increased Inflation Fears

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Principal Points:

• Global shares declined on Tuesday as market participants folded their bets
• Concerns for darkening economic outlook have shaken investor confidence

Global Stocks Slide as Sentiment Wanes

Worldwide shares experienced a sharp drop on Tuesday as investors could not sustain their optimism for the rosy economic outlook. Inflation has been a major concern for market participants who now fear it could hamper growth.

The leading benchmark S&P500 index declined 2% to its biggest single-day loss in five months. The tech-centred Nasdaq Composite fell 2.8%, its worst daily performance since March. The Europe-wide Stoxx 600 lost 2.2% on the day.

While consumer prices have been rising steadily for months, central banks have taken steps to decelerate the surging pace of inflation. Both the US Federal Reserve and the European Central Bank have begun thinking about reversing their easy-money policies. Monetary support from central banks has underpinned the months-long rally in equities since the pandemic hit the financial markets in March 2020.

The US Could Run out of Cash by Oct. 18

The selloff on Tuesday accelerated when Fed Chair Jerome Powell and Treasury Secretary Janet Yellen testified before the US Senate. During their hearing before the Banking Committee, both Mr Powell and Ms Yellen warned that the US could run out of money if lawmakers fail to raise the debt ceiling. Janet Yellen said that the Treasury Department will effectively default near Oct. 18 unless Congress takes action.

The Fed chief highlighted that inflation had turned out to be “larger and longer-lasting than anticipated”. He added that once the economic reopening is complete, higher prices will gradually moderate to lower levels.

During the Senate hearing, Senator Elizabeth Warren labelled Jerome Powell as a “dangerous man to head up the Fed” due to his approach to tackling the pandemic crisis and regulating financial products. Ms Warren said that she will not be supporting him for another term at the Federal Reserve.

Consumer Confidence Drops as Inflation Looms

Weighing on the gloomy market environment, the US consumer confidence index slipped in September. The drop suggested Americans are more willing to restrict their spending due to short-term uncertainties and surging prices. On that note, home prices surged 19.7% in July, the biggest annual jump in more than 30 years.

In other markets, the price of oil eased yesterday. After hitting $80 for the first time in three years, Brent crude, the international oil benchmark, dropped to levels near $77 a barrel. Gold slipped to a one-month low, reaching a price of $1,727 per toy ounce.

The euro declined to a one-month low against the US dollar as the pair traded near 1.1680. Similarly, the British pound sterling shed more than 1% against the US dollar. In other words, the GBP/USD rate traded near 1.3520 in the early hours of today’s session, a six-month low for the pair.

Cryptocurrencies Get a Boost from Elon Musk

Bitcoin and other cryptocurrencies dropped on Tuesday, tracking the global stock market selloff. The crypto dip, however, was quickly scooped up and bitcoin recouped its losses by early Wednesday. The original token reached a session high of $42,400 today.

The cryptocurrency market received a boost from Elon Musk who commented that crypto could not be destroyed by central banks. In his talk during the Code Conference in Beverly Hills, the Tesla CEO said the US government should not curb the crypto market by introducing regulations.

Trading Ideas

Wednesday’s market mood is looking optimistic with US futures aiming to regain the lost ground from a day earlier. Traders and investors could aim to buy the dip with technology stocks poised for the largest gains as they were among the biggest decliners yesterday.