THE US dollar index fell from 20-year highs and Wall Street equities closed sharply lower yesterday with the latest economic data and Amazon.com’s disappointing quarterly report and outlook keeping the spotlight on surging inflation.
In US Treasuries the benchmark 10-year yield rose, capping off the biggest monthly gain since December 2009 after economic data.
Equities were under pressure after data showed that monthly inflation surged by the most since 2005 while US consumer spending increased more than expected in March amid strong demand for services.
Also, the first quarter US labour costs surged by the most in 21 years, pointing to rising wage inflation, supporting the US Federal Reserve (US Fed) policy tightening ahead of its scheduled meeting next week.
“With the weekend approaching and the US Fed meeting next week, people are clearing the decks,” said Virginia’s Chase Investment Counsel president Peter Tuz, who also cited disappointing earnings and the Ukraine war.
“(The war between) Russia and Ukraine are clearly driving up risk factors. It doesn’t show any signs of abating,” he said.
Ukrainian President Volodymyr Zelenskiy said there was a high-risk peace talks with Moscow would collapse while US lawmakers pledged to move fast on a plan to send as much as US$33 bil to help Kyiv keep fighting Russia’s assault.
BMO Capital Markets head of US Rates Strategy Ian Lyngen notes that the data could lead to a more hawkish response from the US Fed.
“The operating assumption in the market at the moment is that the US Fed has sufficient flexibility to ratchet up the pace of hiking in response to any further acceleration of inflationary pressures,” he said.
The Dow Jones Industrial Average fell 938.99 points, or 2.77%, to 32,977.4, the S&P 500 lost 155.58 points, or 3.63%, to 4,131.92 and the Nasdaq Composite dropped 536.89 points, or 4.17%, to 12,334.64.
The Nasdaq showed its biggest monthly decline since October 2008.
The pan-European STOXX 600 index had risen 0.74% but MSCI’s gauge of stocks across the globe shed 1.88%. And on the last trading day of April, the global index was on course for its biggest monthly decline since March 2020.
Amazon shares closed down 14% after the e-commerce giant delivered a disappointing quarter and outlook late Thursday as it was swamped by higher costs to run its warehouses and deliver packages to customers.
Emerging market stocks rose 2.08%.
Russia’s rouble hit a two-year peak against the dollar and the euro yesterday as capital controls helped it weather another larger-than-expected interest rate cut and Russia appeared to make a last-gasp effort to avoid a default.
Oil concerns
Other emerging market currencies also rallied on the dollar’s retreat.
The dollar looked set to snap a six-day advance against a basket of currencies yesterday although it was still on track for its biggest monthly gain in seven years as concerns about the global economy and a hawkish Federal Reserve bolstered demand for the greenback in April.
The dollar index fell 0.415%, with the euro up 0.47% to US$1.0543. The Japanese yen strengthened 0.80% versus the greenback at 129.82 per dollar.
The benchmark 10-year US yields, having risen as high 2.981% on April 20, its highest level since December 2018, were eying five straight months of gains.
Benchmark 10-year notes last fell 14/32 in price to yield 2.918%, from 2.863% late on Thursday.
Oil prices fell yesterday, reversing late in the volatile session, pulled downward by the US heating oil contract that plummeted by more than 20% at one point on the day of its expiration.
US crude oil futures settled at US$104.69 down 67 cents or 0.64%. Brent crude futures settled at US$109.34, up US$1.7 or 1.63%.
Gold prices gave up some gains after earlier rallying as much as 1.3% when the dollar retreated and the precious metal was set to end the month lower on bets of aggressive US Fed policy tightening.
“The gross domestic product (GDP) data and the cost index for employment data showed that inflation still running fairly hot. This is generally supportive for gold,” said an ED&F Man Capital Markets analyst Edward Meir.
Spot gold was last up 0.1% to US$1,895.86 an ounce. – April 30, 2022
