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Economy

Shares drop as stubborn U.S. inflation stokes worries on rates, economy

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© Reuters. FILE PHOTO: A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai, India, February 1, 2020. REUTERS/Francis Mascarenhas

By Tom Westbrook

SINGAPORE (Reuters) – Stocks fell and the dollar held firm on Thursday as data showed U.S. inflation persistently high, and investors worried about the economic toll of aggressive interest rate hikes to tame it.

U.S. markets whipsawed after the news, then closed sharply lower. S&P 500 futures rose 0.5% in a bumpy Asia session. Foreign exchange trade was also volatile, but has left the dollar index within a whisker of a two-decade high.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1%. Japan’s Nikkei fell 1%.

Bitcoin was pinned below $30,000 on Thursday, nursing loses from an almost 27% wipeout that has taken $11,000 off its price in about a week.

Headline U.S. consumer prices rose 8.3% for the 12 months to April. That was slower than the 8.5% pace of a month earlier and raised hopes that the pace of price rises has peaked. However, it was also higher than market forecasts for 8.1%, and reaffirmed concerns that rates will need to rise quickly to tame it.

“We’re now very much embedded with at least two further hikes of 50 basis points on the agenda. For equity markets that really is the end of free money,” said Damian Rooney, director of institutional sales at brokerage Argonaut in Perth.

“I think we probably were delusional six months ago with the rise of U.S. equities on hopes and prayers and the madness of the meme stocks, and suddenly were going a little bit back to what is reality,” he said.

Apple shares (NASDAQ:AAPL) fell 5% overnight, dragging the S&P 500 down 1.65% and the Nasdaq down 3.2%.

Short-dated Treasuries were dumped in the wake of the data, but the longer end of the curve rallied as investors worried steep rate hikes would slam the brakes on growth.

The benchmark 10-year Treasury yield fell six basis points (bps) overnight and dropped a further four bps in Tokyo trade to 2.8877%. The gap between two-year and 10-year yields narrowed, flattening the yield curve.

“There should be a tipping point in how far the Fed can be pressed before odds clearly point towards a hard landing,” said NatWest Markets’ U.S. rates strategist Jan Nevruzi.

SELL IN MAY

The Nasdaq is down nearly 8% in May so far and more than 25% this year, bearing the brunt of selling as higher U.S. yields draw money out of expensively priced tech stocks.

Cryptocurrency markets are also melting down, with the collapse of the so-called stablecoin TerraUSD highlighting the turmoil.

A weakening growth picture outside the United States too is battering investor confidence, as war in Ukraine threatens an energy crisis in Europe and lengthening lockdowns in China throw another spanner into supply chain chaos.

Property developer Sunac China said it missed a bond interest payment and will miss more as China’s real estate sector remains in the grip of a credit crunch.

The uncertainty about nearly everything except U.S. rate rises has benefited the dollar. It held the euro near recent lows at $1.0524 on Thursday and hovered around 129.78 yen, while trade-sensitive currencies were squeezed.

The Australian dollar was volatile in the wake of the U.S. inflation data, but was unable to hold its ground above $0.70 and last bought $0.6943.

Sterling was at a two-year low of $1.2230 as a stand-off over post-Brexit trade rules for Northern Ireland deepens.

The Hong Kong Monetary Authority spent $202 million on Thursday to support the Hong Kong dollar which hit the weaker end of its peg to the greenback.

In commodity trade, oil steadied after a Wednesday surge amid concerns about westbound gas flows from Russia to Europe.

Brent crude futures edged 0.7% lower to $106.78 a barrel and U.S. crude was 0.6% lower at $105.07 a barrel.

British activity and growth data is due later in the day.

Economy

Brazil’s govt will maintain GDP outlook for 2022 and 2023 -sources

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© Reuters. FILE PHOTO: Consumers shop at a weekly street market in Rio de Janeiro, Brazil, September 2, 2021. REUTERS/Ricardo Moraes

By Marcela Ayres

BRASILIA (Reuters) – Brazil’s Economy Ministry will hold its economic growth outlook at 1.5% in 2022 and 2.5% in 2023, two officials told Reuters on Wednesday, forecasting activity ahead of market projections due to labor market strength and growing private investments.

The ministry will update its forecasts for economic indicators on Thursday and inflation figures are expected to be lifted from the previous outlook, in March, when the IPCA consumer price index was seen at 6.55% this year.

Data will be used in the bi-monthly income and expenditure report calculations, scheduled for Friday.

Economists have been increasing their forecasts for this year’s GDP, bringing the numbers closer to those forecast by the government.

Analysts say demand in the country has been helped by greater fiscal stimulus, following an increase in a cash transfer program to poorer people. In addition, the job market has shown signs of strength and the Omicron coronavirus wave has not knocked social mobility as feared.

However, they say expectations for 2023 have deteriorated, with aggressive central bank monetary tightening to tame inflation set to affect activity from the second half of the year onwards.

The central bank has raised interest rates to 12.75% from a record-low 2% in March 2021, and has already signaled another likely hike in June.

Goldman Sachs (NYSE:GS) and Credit Suisse now see Brazil’s GDP rising 1.25% and 1.4% this year, respectively, against previous 0.6% and 0.2% projections. For 2023, Goldman Sachs lowered its forecast to 0.9% from 1.2%, while Credit Suisse cut its outlook to 0.9% from 2.1%.

Bank of America (NYSE:BAC) projected on Tuesday that Brazil will grow 1.5% in 2022 from 0.5% earlier. However, expansion is now seen at 0.9% in 2023, from 1.8% previously.

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Economy

Factbox-U.S. companies offering abortion travel benefits

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© Reuters. Signage is seen at an Amazon facility in Staten Island, New York City, U.S., April 24, 2022. REUTERS/Andrew Kelly

(Reuters) -A small but growing number of companies, including Amazon.com (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) Inc, are rolling out policies to offer benefits to U.S. employees who may need to access abortion services as some state legislatures impose tighter restrictions.

An unprecedented leak of a draft opinion earlier this month suggests that the U.S. Supreme Court is set to vote to overturn the landmark 1973 Roe v. Wade ruling, which legalized abortion nationwide.

Following is a list of companies who have offered their U.S. employees reproductive healthcare benefits including abortion coverage or travel benefits for out-of-state abortions.

Company Benefit(s) Offered

Citigroup Inc (NYSE:C) The bank has started covering travel expenses for employees

who go out of state for abortions because of newly enacted

restrictions in Texas and other places, becoming the first

major U.S. bank to make that commitment.

Yelp (NYSE:YELP) Inc The crowd-sourced review platform will extend its abortion

coverage to cover expenses for its employees and their

dependents who need to travel to another state for abortion

services.

Amazon.com The second-largest U.S. private employer told employees it

will pay up to $4,000 in travel expenses yearly for

non-life threatening medical treatments, among them

elective abortions.

Levi Strauss (NYSE:LEVI) & CO The apparel company will reimburse travel expenses for its

full- and part-time employees who need to travel to another

state for healthcare services, including abortions.

United Talent Agency The private Hollywood talent agency said it would reimburse

travel expenses related to women’s reproductive health

services that are not accessible in an employee’s state of

residence.

Tesla Inc Tesla’s Safety Net program and health insurance includes

travel and lodging support for its employees who may need

to seek healthcare services that are unavailable in their

home state, according to the company’s 2021 impact report.

[https://www.tesla.com/ns_videos/2021-tesla-impact-report.pdf

]

Microsoft Corp (NASDAQ:MSFT) Microsoft Corp said that it would extend its abortion and

gender affirming care services for employees in the United

States to include travel expense assistance.

Starbucks Corp (NASDAQ:SBUX) Starbucks Corp said it will reimburse U.S. employees and

their dependents if they must travel more than 100 miles

from their homes to obtain an abortion.

Mastercard Inc (NYSE:MA) Mastercard Inc said it will fund travel and lodging for

employees seeking abortions outside their home states from

June, according to an internal memo seen by Reuters.

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Economy

Stocks pummeled by growth worries, U.S. dollar climbs

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2/2

© Reuters. A passerby wearing a protective face mask walks past an electric screen displaying a graph showing Japan’s Nikkei share average, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan February 24, 2022. REUTERS/Issei Kato/Files

2/2

By Herbert Lash and Chuck Mikolajczak

NEW YORK (Reuters) – Global stocks plunged and the dollar strengthened for the first time in four sessions on Wednesday as concerns about rising inflation on economic growth soured sentiment.

The mood was underscored by a 9% surge in British consumer prices and a faster-than-expected acceleration in inflation in Canada.

British inflation surged to its highest annual rate since 1982 as energy bills soared, while Canadian inflation rose to 6.8% last month, largely driven by rising food and shelter prices, Statistics Canada data showed.

British inflation is now the highest among major economies in Europe, but prices are rapidly rising worldwide, forcing central banks around the globe to hike interest rates and tamp down growth as suggested by a modest decline in U.S. homebuilding in April.

Soaring prices and material shortages have already hit homebuilding, the sector of the economy most sensitive to rates. But the U.S. Commerce Department report also showed a record backlog of houses to be built, indicating a decline in homebuilding potentially might be marginal.

Adding to the gloom caused by inflation were earnings results from Target Corp (NYSE:TGT), whose quarterly profit halved as it warned of a bigger margin hit this year due to rising fuel and freight costs.

Target shares plummeted 24.88%, its biggest one-day percentage drop since the “Black Monday” stock market crash on Oct. 19, 1987, a day after Walmart (NYSE:WMT) Inc warned of similar margin squeezes and saw its stock drop 11.4% for its biggest one-day percentage fall since Oct. 16, 1987.

“It was Walmart yesterday and everybody thought it was a one-off,” said Dennis Dick, head of markets structure and a proprietary trader at Bright Trading LLC in Las Vegas. “Now that Target misses earning a lot more than Walmart even did, they’re scared that consumer is not as strong as everybody think it is.”

MSCI’s gauge of stocks across the globe shed 2.74%, while in Europe, the pan-regional STOXX 600 index closed down 1.14%.

On Wall Street, the Dow Jones Industrial Average fell 3.56%, the S&P 500 lost 4.03% and the Nasdaq Composite dropped 4.73%.

The declines for the S&P 500 and Dow marked their biggest one-day percentage declines since June 11, 2020.

Few analysts are willing to predict the end to selling after a bruising first five months of the year for risk assets given the magnitude of macroeconomic uncertainty, with many anticipating market volatility will be the norm for some time.

The U.S. dollar gained ground as the sell-off in risk assets boosted the safe-haven appeal of the greenback, which was on pace to snap a three-session losing streak, a day after Fed Chair Jerome Powell pledged the U.S. central bank would ratchet up rates as high as needed to combat rising inflation.

The dollar index rose 0.581%, with the euro down 0.8% to $1.0463. The Japanese yen strengthened 0.92% to 128.23 per dollar.

Treasury yields fell, although a steep path for rates remained the prevailing market consensus as the benchmark 10-year note yield hit a one-week high of 3.015% after Powell’s hawkish comments.

The yield fell 8.1 basis points to 2.890% on Wednesday after a soft U.S. housing starts number.

The German two-year government bond yield shot to 0.444%, its highest since November 2011 after more hawkish central banker comments, and last was up 1.6 basis points at 0.386%. The European Central Bank’s Klaas Knot said on Tuesday that a 50-basis-point rate hike in July was possible if inflation broadens.

Gold prices were little changed despite the risk-off environment as looming U.S. interest rate hikes and a resurgent dollar dimmed the metal’s shine.

Spot gold was up 0.1% at $1,816.06 an ounce.

Oil prices dipped in volatile trade, reversing early gains as traders grew less worried about a supply crunch after government data showed U.S. refiners ramped up output.

U.S. crude settled down 2.5% at $109.59 per barrel and Brent settled at $109.11, down 2.52% on the day.

GRAPHIC: MSCI World equity index (https://fingfx.thomsonreuters.com/gfx/mkt/movanzkkopa/world%20stocks.PNG)

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