Global Equities Slide as Downward Momentum Accelerates
Global equities decline amid growing uncertainty over the economic recovery. Persistent inflation pressures dent optimism.
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- Global stocks turn lower as a result of decreased optimism around the economic recovery
- Inflation in the US and Europe continues to climb, undermining central banks’ projections
World Shares Slip as Investors Fear Persistent Inflation
Stocks fell broadly on Tuesday on both sides of the Atlantic while Asian shares extended their slide into Wednesday’s market session.
In the US, equities finished yesterday’s trading action deep in the red with the Dow Jones Industrial Average losing over 290 points. The broader S&P500 declined more than half a percent, while the Nasdaq Composite closed down 0.45%.
Renewed recovery concerns have increased the risk-averse approach to the risky assets as they gradually pull back from record highs set earlier in September. Persistent inflation pressures are threatening to hurt the performance of US stocks as higher inflation would reduce expectations of earnings growth.
Inflation in the US Stays Above 5%
The Labor Department on Tuesday revealed inflation for August remained above 5%, meeting the consensus. All-items inflation for August rose 5.3% from a year ago, and 0.3% from July. Against the backdrop of a moderate pace of rising inflation, market participants have been increasingly concerned if the economic recovery has reached its peak.
Consumers, on the other hand, are expecting higher prices to continue accelerating as the reopening economy is shifting gears. Data published by the New York branch of the Federal Reserve showed consumer expectations for higher inflation over the short term are at the highest level since 2013.
Price growth driven by temporary factors around the return of business activity and consumer spending is presenting elevated challenges for the US central bank, the Federal Reserve. Fed Chairman Jerome Powell has acknowledged that inflation could be more permanent than initially forecasted. On that note, many economists point that Fed officials may announce they will start tapering shortly after their September meeting.
European Markets Drift Sideways
In Europe, stocks mostly retreated on Tuesday due to the heightened concerns that surging inflation was not confined to the US only. Higher prices have left a solid footprint in France’s August consumer price report. Year-on-year, annual inflation in France rose 1.9% in August, and 0.6% compared with a month ago.
UK inflation for August surged with the fastest monthly pace since the Bank of England began setting interest rates. Prices rose 1.2% on a monthly basis to 3.2% in August, the highest level since 2012. The sharp rise challenged the Bank of England’s forecast that inflation would be temporary and decrease as the economy progressed.
On Wednesday, bourses across Europe trade fairly flat but still in negative territory. The Stoxx 600 was down at the opening, with all major indexes following suit.
US stock index futures are slightly positive ahead of the bell in New York today. Futures contracts tied to the major averages point higher between 0.1% to 0.3% early on Wednesday.
Bitcoin Steady Near $47,000
In cryptocurrency markets, Securities and Exchange Commission Chairman Gary Gensler discussed bitcoin regulations before the Senate Banking Committee. In his comments, he asked Congress to grant the SEC more authority as, in his view, many cryptocurrencies could be defined as securities.
Bitcoin traded above $47,000 early on Wednesday amid a broader crypto market move higher. The leading cryptocurrency set a session high of $47,400, a nine-day peak.