Wall Street sinks on inflation fears and surging interest rates
Wall Street experienced its worst day in three weeks after a surge in interest rates sparked a wave of selling.
Markets at 7:15am (AEST):
- ASX SPI 200 futures -0.1pc, ASX 200 (Tuesday close) -0.6pc to 6,098
- AUD: 74.71 US cents, 55.29 British pence, 63.1 Euro cents, 82.44 Japanese yen, $NZ1.09
- US: Dow Jones -0.8pc at 24,706, S&P 500 -0.7pc at 2,711, Nasdaq -0.8pc at 7,352
- Europe: FTSE +0.2pc at 7,723, DAX -0.1pc at 12,970, Euro Stoxx 50 flat at 3,564
- Commodities: Brent crude -0.2pc at $US78.09/barrel, spot gold -1.7pc at $US1,290.34/ounce
The Dow Jones Industrial Average fell by 193 points, or 0.8 per cent, to 24,706 — snapping its eight-day “winning streak”.
The S&P 500 and Nasdaq indexes also tumbled sharply, down 0.7 and 0.8 per cent respectively.
Fears of higher interest rates
The benchmark US 10-year Treasury yield surged to about 3.06 per cent, its highest level in seven years.
Bond yields are particularly important to investors, particularly since they act as a barometer for mortgage rates.
Also causing jitters on Wall Street were the solid retail figures released overnight, which sparked concerns about faster inflation — and in turn, the prospect of Federal Reserve announcing further rate hikes this year.
Retail sales increased at a moderate 0.3 per cent in April, as rising petrol prices took a bite out of discretionary spending, according to the US Commerce Department.
But core retail sales (which excludes the volatile impact of petrol, automobile, building materials and food prices) rose at a brisker 0.4 per cent monthly, suggesting consumer spending is accelerating after its first-quarter slowdown.
Investors also remain preoccupied by the run-up to high-level talks between China and the United States, set to commence this week in Washington.
US ambassador to China, Terry Branstad, said the two countries remain “very far apart” regarding a tariff resolution — after which White House economic adviser Larry Kudlow told Politico he supports efforts to reach an agreement.
“In general terms, we have a trade skirmish not a trade war,” said Anthony Chan, chief economist of JP Morgan Chase & Co.
“Longer term, we believe these trade issues will be resolved but on a day-to-day basis they lead to some consternation from investors.”
Aussie wages in the slow lane
Australian shares are likely to begin the day weaker, following the weak lead of US markets.
In local economic news, the Bureau of Statistics will release its Wage Price Index (WPI) for the March quarter.
The consensus view is the WPI will rise by about 0.6 per cent over the quarter, giving an annualised growth rate of 2.1 per cent.
It’s likely to show Australians are still experiencing historically low pay rises — and much it has been for the past couple of years.
In addition, Westpac will release its latest consumer confidence report, which may capture the initial reactions of consumers to the 2018 budget.
Not only did rising bond yields sink Wall Street overnight, it also led to a fall in gold prices and a surge in the US greenback.
The Australian dollar fell sharply to 74.7 US cents, and was also down to 55.3 British pence and 63.1 Euro cents.