World

US and European stock markets slumped Wednesday as inflation data and corporate reports stoked investor fears about recession and earnings.

News that UK inflation has spiked to a 40-year peak of nine percent in April helped push London stocks down 1.1 percent.

The figure also sent the pound sliding on worries that the cost-of-living crisis will spark a recession in Britain, in line with the Bank of England’s recent forecast.

In the eurozone, Frankfurt fell 1.3 percent and Paris shed 1.2 percent in value.

On Wall Street, the Dow was down 2.3 percent in late morning trading on worries high inflation will erode corporate earnings.

The tech-heavy Nasdaq Composite fell by 3.1 percent.

– Recession ‘increasingly inevitable’ –

“A recession is looking increasingly inevitable in the UK and other countries… if the inflation data does not improve,” OANDA analyst Craig Erlam told AFP.

“That does not bode well for equity markets.”

The technical definition of a recession is two quarters of economic contraction in a row.

Investors remain on red alert over decades-high inflation, which has surged around the world as Russia’s invasion of Ukraine fuels spiking energy and food prices.

That in turn has sparked interest rate hikes from major central banks including the Bank of England and the US Federal Reserve, as they seek to contain runaway prices.

Concerns that companies will have trouble were reignited by the latest earnings from US retailer Target, which saw its profits fail to meet analyst expectations despite higher-than-expected sales.

Target’s “report is a stark example of the profit margin pressures most companies are facing due to high inflation and it has stoked concerns about being stuck in a stagflation environment,” said market analyst Patrick O’Hare at Briefing.com.

Stagflation is when an economy experiences high inflation and little or no growth.

Target’s shares plunged by around a quarter.

The miss by Target follows a similar performance by rival Walmart and online retail giant Amazon, which suffered its first quarterly loss since 2015 at the start of this year.

“The big falls in shares of these retails … highlights the damage inflation is inflicting on the sector’s profit margins,” said Fawad Razaqzada at City Index.

“What’s more, consumers are getting squeezed as well and if they now start to cut back on spending then retailers could suffer even further,” he added.

Asian equities traded mixed on Wednesday, despite strong Wall Street gains after brisk US retail sales data, although strong data is likely to invite further interest rate hikes by the Federal Reserve.

The Fed’s monetary policy tightening has sent jolts through markets this year, deepening the apprehension of investors already roiled by China’s Covid-19 lockdowns and Russia’s invasion of Ukraine.

– Key figures at around 1530 GMT –

New York – Dow: DOWN 2.3 percent at 31,898.48  points

EURO STOXX 50: DOWN 1.1 percent at 3,598.84

London – FTSE 100: DOWN 1.1 percent at 7,438.09 (close)

Frankfurt – DAX: DOWN 1.3 percent at 14,007.76 (close)

Paris – CAC 40: DOWN 1.2 percent at 6,352.94 (close)

Hong Kong – Hang Seng Index: UP 0.2 percent at 20,644.28 (close)

Shanghai – Composite: DOWN 0.3 percent at 3,085.98 (close)

Tokyo – Nikkei 225: UP 0.9 percent at 26,911.20 (close)

Brent North Sea crude: DOWN 1.9 percent at $109.81 per barrel

West Texas Intermediate: DOWN 1.9 percent at $110.28 per barrel

Euro/dollar: DOWN at $1.0502 from $1.0550 at 2100 GMT Tuesday

Pound/dollar: DOWN at $1.2403 from $1.2493

Euro/pound: UP at 84.64 pence from 84.45 pence

Dollar/yen: DOWN at 128.19 yen from 129.38 yen

burs-rl/lc

China’s premier called for greater “urgency” in rolling out measures to support the virus-battered economy, state media reported Wednesday, days after data highlighted the stark impact of Covid-19 restrictions.

China — the last major global economy sticking to a rigid zero-Covid policy — is battling an economic slump due to prolonged virus lockdowns that have constricted supply chains, quelled demand and stalled manufacturing.

“All localities and departments should step up their sense of urgency, and new measures that can be used should be used,” Li Keqiang said at a symposium on Wednesday, according to state broadcaster CCTV.

He added that efforts to support the economy should bring it “back to normal quickly” after admitting that indicators have “weakened significantly” since March, with a particular dip in April.

Data on Monday showed retail sales and factory output last month had slumped the most since the start of the pandemic, while unemployment edged back toward its February 2020 peak.

Beijing’s unrelenting approach to Covid-19 outbreaks has snarled supply chains and locked down tens of millions of people, hitting major financial, industrial and tourist hubs.

Borders remain closed to most foreigners and a slew of international sports events have been scrapped over pandemic concerns.

But Chinese leader Xi Jinping pledged Wednesday to keep his country open to the world, just days after immigration authorities doubled down on border restrictions.

“China’s resolve to open up at a high standard will not change, and… the door of China will open still wider to the world,” Xi told a conference on global trade, according to a readout from the foreign ministry.

Beijing has significantly tightened border controls since last year and has said it will only issue new Chinese passports if travel is considered essential.

China has targeted full-year growth of around 5.5 percent, but data published in April showed that first-quarter growth slowed to 4.8 percent after the world’s second-biggest economy lost steam in the latter half of last year.

And the economic targets hold a political dimension for Xi, who is eyeing another term in power.

Xi has pinned his legacy on China’s strong economic growth and winning the “battle” against Covid-19.

But the current outbreak is the country’s worst since the virus emerged in Wuhan in late 2019, and the economy is beginning to weaken. 

– Tech support –

Li also called for backing Chinese tech companies’ bids to list domestically and abroad, a day after Communist Party leaders doubled down on support for the tech sector in a rare meeting with executives.

China’s economic slowdown appears to have motivated a softer approach toward the vast, money-spinning tech sector, after an 18-month clampdown driven by fears massive internet companies control too much data and expanded too quickly.

Vice Premier Liu He and other Communist leaders addressed executives and offered support for “the sustainable and healthy development of the platform economy and the private economy,” state broadcaster CCTV said Tuesday.

During the tech crackdown, IPOs from Alibaba’s Ant Group and Didi Chuxing — China’s Uber — were spiked, while millions of dollars of fines over anti-trust and data breaches were ladled out to tech giants. 

Chinese tech shares surged late April after officials pledged support for internet firms at a Politburo meeting.

Tech giants including Alibaba, Tencent and Baidu were marginally lower Wednesday morning, with e-commerce behemoth JD slumping over 4 percent after it recorded a 3 billion yuan ($444 million) loss in first-quarter earnings. 

On Wednesday, Tencent reported record-low quarterly revenue growth at nearly zero, reaching the slowest pace since the company went public in 2004.

Some of the Trump-era tariffs imposed on China appear to hurt consumers and businesses more than address real issues posed by the Asian giant, US treasury secretary Janet Yellen said Wednesday, as the Biden administration mulls lifting the punitive duties.

American tariffs on hundreds of billions of dollars of Chinese imports are due to expire in July, and President Joe Biden has faced growing calls to get rid of the punitive duties to help combat the highest US inflation in over four decades.

Speaking at a press conference in Germany, Yellen voiced support for such a move.

Some of the tariffs imposed by former president Donald Trump “seem as though they impose more harm on consumers and businesses and aren’t very strategic in the sense of addressing real issues we have with China, whether it concerns supply chain vulnerabilities, national security issues or other unfair trade practices,” she said.

“And so I see a case not only because of inflation, but because there would be benefits to consumers and firms… that some relief could come from cutting some of them,” she told reporters ahead of a G7 finance ministers meeting in Koenigswinter, near Bonn.

“But we’re having these discussions,” she added.

– Political risk –

Biden said earlier this month he was “discussing” lifting trade tariffs on China, but that no decision had been made yet.

Supporters of the step argue that ending the tariffs would cut roaring US inflation by making imports cheaper.

But lifting the measures would likely bring a political risk for the White House, which does not want to be branded weak on China.

The tariffs were first imposed in 2018, eventually ramping up to cover about $350 billion in annual imports from China in retaliation for Beijing’s theft of American intellectual property and forced transfer of technology.

The measures will lapse July 6 unless there is a request to continue them, at which point they would be subject to review.

US trade officials said earlier this month they are reaching out to the public to seek comment on whether to extend the tariffs, including sending letters to 600 firms that expressed support for the measures.

Foreign companies have long complained about Beijing’s failure to protect know-how and patents, including in some cases forcing firms to share information with domestic partners as the price for doing business in the massive Chinese market.

Prior to Trump, US administrations had sought to resolve the issues through dialogue and gentle pressure, but the Republican president pulled out all the stops, sparking retaliation from Beijing on US goods.

Consumed daily by billions of people around the world in bread and other flour-based products, wheat is a basic food staple, making current record prices for the cereal a global concern. 

Low rainfall or droughts in major producing countries were already causing worries before Russia’s invasion of Ukraine in February sent markets soaring.

Since then, wheat-exporting powerhouse Ukraine has struggled to sell and sow its crops, putting consumers in poor countries at risk of poverty and even famine

Sebastien Abis, head of the Demeter agricultural think tank in Paris and an expert at the Institute for International and Strategic Relations, explains what’s at stake: 

– Is it possible to replace wheat with something else? –

“It’s very difficult. Wheat is the most important cereal for global food security: it is eaten by billions of humans in the form of bread, flour or semolina. 

“Corn is grown in larger quantities but is mostly used for animal feed or for industrial purposes.

“Beyond its nutritional qualities, wheat is a very social and democratic product, enabling people to make low-cost food — and it is often subsidised.”

– But prices are putting it beyond the reach of consumers in some countries such as Lebanon or Yemen? –

“Yes, because of shortages and because you can’t produce it just anywhere. You can grow it in temperate climates, but there are only a dozen countries that produce a lot and can export it, particularly Russia, Ukraine, the United States, Australia.

“In recent years, the United States has produced less and less because they are switching to corn and soya . After the Soviet period, the two countries that surged ahead were Ukraine and Russia. 

“Ukraine accounted for 12-13 percent of global exports in recent years.”

– Is the lack of Ukrainian production the reason for the current situation? –

“We have at the same time a dreadful geopolitical situation, with multilateralism faltering, to which we must add worrying climatic events, with droughts in the southern Mediterranean basin, worries in the United States and in Europe. 

“India, which had an exceptional harvest last year and reserves that enabled it to sell more on the markets, has been hit with a terrible drought and will not be able to export. 

“Prices that were already high before the war are now exploding: wheat reached 440 euros ($463) a tonne on the Euronext market on Monday.”

– That came after India announced it would no longer export wheat. Why? –

“India had announced a rather ambitious target of exporting 10 million tonnes. It had sold around 3-3.5 million tonnes before it put its export ban in place, so one of the questions is whether it will honour its commitments.

“The situation is tense because there’s no country that can put more than usual into the export market. Perhaps Russia will if it has a good harvest. 

“But even if the war stopped, Ukraine’s production and exports will not bounce back immediately.”

– Have we reached the peak of the crisis, ahead of the harvests in the US and Europe this summer? 

“We have real long-term risks. We still haven’t seen all the shocks, because on global markets for the last two months we’ve been seeing fulfilments of contracts signed before the Russian invasion. We’re now entering the hard part.” 

– What about stocks? – 

“For wheat, we have around 270 million tonnes for a planet that consumes around 800 million a year. Around half are in China which has one year’s consumption in reserve. Excluding China, cereal stocks are at their lowest level in 25 years. 

“We need international solidarity and cooperation. We can’t leave countries to struggle on their own for food security but at the same time you can’t be surprised that some countries are looking out for themselves first and foremost.

“We need to produce everywhere where we can produce, notably in Africa. But for that we need peace and security”. 

US and European stock markets slid Wednesday as inflation data and corporate reports stoked investor fears about recession and earnings.

News that UK inflation has spiked to a 40-year peak of nine percent in April helped push London stocks 0.4 percent lower in afternoon trading.

The figure also sent the pound sliding on worries that the cost-of-living crisis will spark a recession in Britain, in line with the Bank of England’s recent forecast.

In the eurozone, Frankfurt shed 0.6 percent and Paris 0.8 percent in value.

On Wall Street, all three major stock indices opened lower on worries high inflation will erode corporate earnings.

– Recession ‘increasingly inevitable’ –

“A recession is looking increasingly inevitable in the UK and other countries… if the inflation data does not improve,” OANDA analyst Craig Erlam told AFP.

“That does not bode well for equity markets.”

The technical definition of a recession is two quarters of economic contraction in a row.

Investors remain on red alert over decades-high inflation, which has surged around the world as Russia’s invasion of Ukraine fuels spiking energy and food prices.

That in turn has sparked interest rate hikes from major central banks including the Bank of England and the US Federal Reserve, as they seek to contain runaway prices.

Concerns that companies will have trouble were raised by the latest earnings from US retailer Target, which saw its profits fail to meet analyst expectations despite higher-than-expected sales.

Target’s “report is a stark example of the profit margin pressures most companies are facing due to high inflation and it has stoked concerns about being stuck in a stagflation environment,” said market analyst Patrick O’Hare at Briefing.com.

Stagflation is when an economy experiences high inflation and little or no growth.

Target’s shares plunged by more than a quarter as trading got underway on Wall Street.

Asian equities traded mixed on Wednesday, despite strong Wall Street gains after brisk US retail sales data, although strong data is likely to invite further interest rate hikes by the Federal Reserve.

The Fed’s monetary policy tightening has sent jolts through markets this year, deepening the apprehension of investors already roiled by China’s Covid-19 lockdowns and Russia’s invasion of Ukraine.

Despite recession concerns, oil prices pushed higher.

“Oil prices are on the rise again as Shanghai takes a big step towards reopening following three days of no new cases in the broader community,” said OANDA’S Erlam.

– Key figures at around 1330 GMT –

London – FTSE 100: DOWN 0.4 percent at 7,485.25 points

Frankfurt – DAX: DOWN 0.6 percent at 14,095.25

Paris – CAC 40: DOWN 0.8 percent at 6,380.63

EURO STOXX 50: DOWN 0.7 percent at 3,616.00

New York – Dow: DOWN 0.9 percent at 32,368.19

Hong Kong – Hang Seng Index: UP 0.2 percent at 20,644.28 (close)

Shanghai – Composite: DOWN 0.3 percent at 3,085.98 (close)

Tokyo – Nikkei 225: UP 0.9 percent at 26,911.20 (close)

Brent North Sea crude: UP 1.0 percent at $113.07 per barrel

West Texas Intermediate: UP 1.4 percent at $113.97 per barrel

Euro/dollar: DOWN at $1.0520 from $1.0550 at 2100 GMT Tuesday

Pound/dollar: DOWN at $1.2407 from $1.2493

Euro/pound: UP at 84.79 pence from 84.45 pence

Dollar/yen: DOWN at 128.74 yen from 129.38 yen

burs-rl/lth