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Stocks set to sink as bonds jump on growth fears: Markets wrap

A slump in stocks is set to continue in Asia on Thursday after mounting fears of an economic downturn hit US shares and spurred a flight to havens including Treasuries and the dollar.

Futures signal declines loom for Japan, Australia and Hong Kong in the wake of a 4% plunge in the S&P 500, the biggest daily drop in almost two years. The technology-heavy Nasdaq 100 shed over 5%. S&P 500 E-Minis fell 0.2% in early Asian trading.

Earnings reports from consumer stalwarts stoked worries that high inflation is weighing on margins and consumer spending. Target Corp. plunged the most since Black Monday in 1987, a day after Walmart Inc. also spiraled lower.

Federal Reserve officials reaffirmed that sharply tighter monetary policy lies ahead to cool economic activity and get price pressures under control. Chicago Fed President Charles Evans said raising interest rates somewhat above the neutral level and stopping there should help bring inflation down.

The search for refuge amid fraying risk appetite saw Treasuries rally and the yield curve flatten, while also bolstering the dollar, yen and Swiss franc.

China’s Covid lockdowns amid a persistent omicron outbreak are also buffeting markets. Oil sank below $110 a barrel and a commodity index shed 1.5%.

The challenges from inflation for bellwether retailers weakens the argument that corporate earnings can help stem this year’s rout in stocks. Instead, global equities are sliding toward a bear market as recession fears mount.

“We are pricing in a growth scare,” Lori Calvasina at RBC Capital Markets told Bloomberg TV. “The market is trying to find a bottom here. There is a lot of uncertainty in this market right now about whether or not that recession is going to come through or if it’s going to be another near-death experience.”

In other company news, Cisco Systems Inc. slid in extended trading on a disappointing revenue outlook.

Tencent Holdings Ltd. warned it will take time for Beijing to act on promises to prop up the Chinese tech sector. Premier Li Keqiang said China has enough policy room to deal with the growing challenges facing the economy. A gauge of Chinese shares traded in the US retreated.

Meanwhile, Treasury Secretary Janet Yellen confirmed it’s unlikely the US will allow Russia to continue making bond payments on its foreign-currency debt, as investors have had time to adjust to Moscow’s exclusion from the global financial system for the war in Ukraine.

What damage will be done to the US economy and global markets before the Fed changes tack and eases policy again? The “Fed Put” is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.

Some of the main moves in markets:

Stocks

•The S&P 500 fell 4%

•The Nasdaq 100 fell 5.1%

•Nikkei 225 futures shed 2.1%

•S&P ASX/200 futures fell 1.8%

•Hang Seng futures retreated 1.9%

Currencies

•The Bloomberg Dollar Spot Index rose 0.4%

•The euro was at $1.0464

•The Japanese yen was at 128.30 per dollar

•The offshore yuan was at 6.7815 per dollar

Bonds

•The yield on 10-year Treasuries declined 10 basis points to 2.89%

Commodities

•West Texas Intermediate crude fell 2.5% to $109.59 a barrel

•Gold was at $1,816.61 an ounce

___ ©2022 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.

This story was originally published May 18, 2022 6:50 PM.

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