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Economy

Shares churn, close down; yields fall after U.S. inflation data

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© Reuters. A currency dealer works at a dealing room of a bank in Seoul, South Korea, August 25, 2015. REUTERS/Kim Hong-Ji

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By Sinéad Carew

NEW YORK (Reuters) – Wall Street stocks closed sharply lower and Treasury yields fell in Wednesday’s volatile session as oil prices rallied and investors worried about the potential for an economic slowdown.

U.S. equity indexes had traded higher and lower during the volatile session as investors picked through U.S. inflation data for clues about the Federal Reserve’s rate hiking path.

U.S. data showed higher-than-expected core inflation, excluding items such as oil prices. Some investors appeared encouraged by the annual consumer price growth change to 8.3% in April from 8.5% in March even though it was above the 8.1% analyst estimate.

While some investors were encouraged by the year-over-year improvement, others noted inflation was still red hot and that this was highlighted by oil futures rally.

“This is all about concern about a recession. The inflation numbers we got this morning were not good, worse than expectations … There’s high food prices and increasing concern inflation numbers are going to be sticky on the high side,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder.

The strategist also pointed to a flattening yield curve, referring the difference between long-term and short term Treasury yields as an ominous sign.

“We’ve a very flat yield curve that’s been flirting with inversion. That scares traders about the prospects for a recession. There’s too many investors out there who believe the Fed can engineer a soft landing. That looks increasingly doubtful.”

The Dow Jones Industrial Average fell 326.63 points, or 1.02%, to 31,834.11, the S&P 500 lost 65.87 points, or 1.65%, to 3,935.18 and the Nasdaq Composite dropped 373.44 points, or 3.18%, to 11,364.24.

The S&P closed at its lowest level since March 25 2021 and 18% below its Jan. 3 record finish. Nasdaq lagged its peers sharply as interest rate-sensitive growth sectors, technology and consumer discretionary, underperformed the rest of the market also closing down more than 3%.

MSCI’s gauge of stocks across the globe shed 0.88%, registering its lowest close since November 2020.

Earlier, Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis was taking the glass-half-full view pointing out that inflation, while still high, appeared to be starting to moderate.

“At the end of the day we can get all excited about whether it’s a little higher or a little lower but clearly the year-on- year inflation rate rolled over and looks like it peaked in March. It seems to have turned the corner,” he said.

The U.S. dollar gained ground initially after the inflation news then fell but rose a bit in late trading.

The dollar index, which measures the greenback against a basket of major currencies, was 0.067%, with the euro down 0.13% to $1.0513.

The Japanese yen strengthened 0.35% versus the greenback at 129.97 per dollar, while Sterling was last trading at $1.2245, down 0.62% on the day.

In early trade, benchmark 10-year Treasury yields had fallen to their lowest levels in a week. But after the inflation data, yields marched back up toward the three-year high of 3.203% hit on Monday before falling again.

Benchmark 10-year notes were last rising 20/32 in price to yield 2.9148%, from 2.993% late on Monday. The 30-year bond last rose 57/32 in price to yield 3.026%, from 3.129% while the 2-year note last fell 1/32 in price to yield 2.6371%, from 2.623%. [nL2N2X31QZ]

“The volatility of all the markets is really something, the whiplash aspect of the day,” said Lou Brien, market strategist at DRW Trading. “You’re seeing a bit of a flight to safety and maybe the idea that even with the CPI today that we’re going to re-flatten the curve.”

Oil prices rose on Wednesday after flows of Russian gas to Europe fell and Russia sanctioned some European gas companies, adding to uncertainty in world energy markets. [O/R]

U.S. crude oil futures settled at $105.71 per barrel, up $5.95 or 5.96% while Brent crude futures settle at $107.51/barrel up $5.05 or 4.93%.

Spot gold added 0.8% to $1,852.79 an ounce. [nL3N2X32VB]

(This story has been refiled to correct garble in paragraph 2)

Economy

Investors jolted as U.S. retailers show inflation hitting consumers

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© Reuters. FILE PHOTO: Shoppers are seen wearing masks while shopping at a Walmart store, in North Brunswick, New Jersey, U.S. July 20, 2020. REUTERS/Eduardo Munoz/File Photo

By Sinéad Carew

NEW YORK (Reuters) – The evidence of red-hot inflation seeping into the economy is sending a chill through investors after major U.S. retailers showed people are cutting back on buying bigger ticket items as they just try and get by.

Investors wiped almost 25% off Target (NYSE:TGT) shares on Wednesday after its profit halved as it had to discount bigger items, and Walmart (NYSE:WMT) has dropped more than 17% since it reported weak results early on Tuesday.

Target’s earnings showed consumers spending more on food and household essentials instead of high-margin discretionary items while Walmart showed shoppers moved to buy lower-margin basics.

Investors will on Thursday be focused on earnings due from Kohl’s (NYSE:KSS), which fell 11% on Wednesday and BJ’s Wholesale Club, which fell 16%.

The turmoil came a day after Federal Reserve Chair Jerome Powell pledged the U.S. central bank would ratchet interest rates as high as needed to kill a surge in inflation.

“Retailers are starting to reveal the impact of eroding consumer purchasing power,” said Paul Christopher, head of global market strategy at Wells Fargo (NYSE:WFC) Investment Institute, on the same day his firm forecast a mild recession around year-end into early 2023.

“The consumer’s ability to spend is eroding at a faster pace than it was a month or two ago. We think that pace is going to accelerate further,” he said.

Wednesday’s sell-off saw the S&P 500 close down 4% on the day, 17.7% for the year-to-date and down 18.2% from its Jan. 3 record close. [.N]

The benchmark index’s consumer discretionary index lost 6.6% for its deepest one-day sell-off since March 2020 and is off 30.8% so far for 2022, putting it on track for its weakest year since 2008.

Cantor Fitzgerald said it was unwinding its expectation for a short-term bounce in equities and that if there is a lift, it would likely be shallow and “not worth playing.”

“The (Wal-Mart/Target) numbers are very concerning as they show the consumer is reducing discretionary purchases while company margins return to pre-pandemic levels,” said Eric Johnston, head of equity derivatives and cross asset at Cantor Fitzgerald.

While investors have been worried for some time about inflation, the latest results pile on worries about the impact of inflation on the consumer, said Ryan Detrick, chief market strategist at LPL Financial (NASDAQ:LPLA).

However, the sell-off came the day after data showing U.S. retail sales rose strongly in April as consumers bought more motor vehicles amid supply improvements along with increased spending at restaurants despite high inflation, souring consumer sentiment and rising interest rates.

Cliff Hodge, chief investment officer at Cornerstone Wealth said the narrative was “shifting from inflation scare to recession scare.”

Chuck Carlson, chief executive officer at Horizon Investment Services said retailer results appeared to be potentially “one more indication of perhaps a slowdown in the economy.”

“I just wonder if people are starting to really get pinched by fuel costs – both businesses as well as consumers … When you are paying north of $5 for a gallon of gas, that’s a hammer and that’s a hammer on everybody,” Carlson said.

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Economy

Aussie jumps, safe-haven dollar and yen ease amid Shanghai reopening signs

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© Reuters. FILE PHOTO: U.S. one dollar banknotes are seen in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration//File Photo

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By Kevin Buckland

TOKYO (Reuters) – The safe-haven dollar and yen eased on Thursday while the Australian and New Zealand dollars jumped amid signs of an easing in Shanghai’s coronavirus lockdown, although sentiment remained fragile as global equities sold off.

Shanghai will allow more businesses in some areas to resume normal operations from the start of June, an official said, stirring hopes for an end to a crippling weeks-long lockdown under the government’s strict zero-COVID policy.

That helped lift the mood in a market that was badly bruised on Wednesday by mounting concerns that aggressive tightening by the Federal Reserve and other global central banks could choke growth.

The Aussie gained 0.8% to $0.7008, just above the psychologically important 70 cent level, getting additional support from a tick down in Australian unemployment to the lowest in almost half a century. Overnight, the currency had retreated 1.1% from a high of $0.7046.

New Zealand’s kiwi bounced 0.6% to $0.6334, after losing 1.1% overnight from a top of $0.6370.

Preeminent haven currency the yen slid, with the dollar adding 0.48% to 128.845 yen after a 0.86% tumble on Wednesday.

The dollar index, which tracks the greenback against six major peers, edged 0.16% lower to 103.63, after a 0.55% jump overnight that ended a three-day losing streak.

Despite the moves in foreign exchange markets, a 1.9% slide in Asian stocks was evidence that risk aversion was still front of mind, a day after a 4% drop for the S&P 500 and a 5% plunge for the Nasdaq, said Ray Attrill, head of currency strategy at National Australia Bank (OTC:NABZY).

“Zero-COVID is here to stay, so to me the China outlook is no less grim today than it was yesterday,” he said.

“The macro backdrop that is supporting the dollar, either on relative interest rate grounds or on risk aversion, one or other of those forces is going to remain in play for the time being, so I don’t see a meaningful decline from these levels” in the dollar index, he said.

Poor U.S. housing data on Wednesday added to slowdown concerns, and Fed Chair Jerome Powell had ratcheted up the hawkish rhetoric the previous day by saying the U.S. monetary authority would push interest rates as high as needed to stem a surge in inflation that he said threatened the foundation of the economy.

Powell’s stance “makes it hard to achieve a ‘soft landing’ for the U.S. economy given the long lags between changes in monetary policy and changes in inflation,” Joseph Capurso, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY) in Sydney, wrote in a client note. “The darkening outlook for the U.S. economy supports the USD and safe-haven currencies.”

The euro rebounded 0.38% to $1.0501 after Wednesday’s 0.84% slump.

Sterling got some respite with a 0.37% gain to $1.23905, after dropping 1.2% overnight as a surge in U.K. inflation to a 40-year record fostered worries for a sharp economic slowdown.

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Economy

Deutsche Bank enters new era as chairman’s rocky decade ends

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© Reuters. FILE PHOTO: Chairman of the board Paul Achleitner delivers his speech during the annual shareholder meeting of Germany’s largest business bank, Deutsche Bank, in Frankfurt, Germany, May 23, 2019. REUTERS/Kai Pfaffenbach

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By Tom Sims and Frank Siebelt

FRANKFURT (Reuters) – Deutsche Bank (ETR:DBKGn) begins a new epoch on Thursday as Chairman Paul Achleitner leaves after a rocky decade during which Germany’s largest lender lost billions and saw its share price plummet.

If all goes to plan at Deutsche’s annual general meeting on Thursday, Alexander Wynaendts, a Dutch former insurance executive, will be voted in to succeed Achleitner.

Wynaendts, who is set for a four-year term as chairman, is a former head of Dutch insurer Aegon (NYSE:AEG), which also had staff around the world and a large U.S. presence during a turbulent decade, experience that should serve him well at Deutsche.

Under Achleitner, Deutsche saw multiple top management changes, entered and exited merger talks with rival Commerzbank (ETR:CBKG) and also paid big fines for misconduct that regulators feared could topple the Frankfurt-based bank.

“I look back today on eventful years in what was a difficult phase for our bank,” Achleitner will tell shareholders, according to prepared remarks for the meeting.

“I am leaving Deutsche Bank with the deep conviction that we have all set the course for a successful future,” he will add.

Deutsche has more recently entered calmer waters after an overhaul that trimmed its investment bank and cut costs by shedding thousands of staff. It has posted seven consecutive quarters of profit, its longest streak in the black since 2012.

But control problems continue to plague the bank, despite efforts to beef up safeguards, something Wynaendts plans to focus on strengthening further, a person with direct knowledge of his thinking told Reuters.

Andreas Thomae, a portfolio manager at Deka, which is a big Deutsche investor, is set to tell shareholders he hopes Wynaendts will steer the bank “through a somewhat calmer phase”.

But in a reminder of past problems, prosecutors and federal police last month searched Deutsche’s headquarters in a raid linked to suspicions of money laundering.

Deutsche said at the time that the search was related to suspicious transactions it had itself passed on to authorities and that it was cooperating fully.

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