Stocks turned lower on Tuesday as disappointing news from retailer Target intensified concerns over a global growth outlook already dimmed by central bank rate rises.
Futures contracts tracking Wall Street’s S&P 500 index built on earlier losses, falling 0.8 per cent after the broad gauge rose as much as 1.5 per cent in the previous session.
Shares in Target dropped 9 per cent in pre-market trading after the company said its second-quarter operating margin would be in a range around 2 per cent. In May, it had pointed to a “wide range centred around first quarter’s operating margin rate of 5.3 per cent.” Rival retailer Walmart lost more than 3 per cent pre-market.
Following a shortlived rally on Monday driven by China loosening some Covid-19 restrictions, Europe’s Stoxx 600 share index lost 0.7 per cent, while London’s FTSE 100 slipped 0.1 per cent. Retailers were among the biggest fallers in the region, with London-listed Kingfisher down 3.8 per cent and German company Zalando down 6 per cent.
“Its possible that we’re getting a more negative growth outlook, with higher inflation, central banks having to do more and consumer spending and earnings coming under pressure,” said Joost van Leenders, equity strategist at Kempen Capital Management.
Elsewhere, Australia’s S&P/ASX 200 dropped 1.5 per cent following a decision by the country’s central bank to increase interest rates by half a percentage point, the largest amount in 22 years, sending the nation’s government bond prices tumbling.
The yield on Australia’s 10-year bond rose 0.07 percentage points to 3.55 per cent as the price of the debt fell significantly. The two-year bond yield, which tracks monetary policy expectations, climbed 0.17 percentage points to 2.76 per cent.
The FTSE All-World index of global stocks has dropped almost 14 per cent this year as central banks worldwide have lifted borrowing costs to battle inflationary trends that began with coronavirus-related supply chain glitches and were exacerbated by commodity price rises caused by Russia’s invasion of Ukraine.
“We have priced what we know so far, and we need to be ready to price an improvement, or a lack of one,” said Marco Pirondini, head of US equities at Amundi. “By the end of the summer, if we are still in a regime of high inflation and [oil] sanctions against Russia, then the market has further to correct.”
The RBA made its move ahead of the European Central Bank’s monetary policy meeting on Thursday.
After eurozone inflation hit another record high in May, ECB policymakers signalled the bank would raise its main deposit rate — currently at minus 0.5 per cent — by at least a quarter-point in July and further in September.
Germany’s 10-year Bund yield, a benchmark for borrowing costs in the eurozone, dropped 0.02 percentage points to 1.3 per cent.
“We foresee significant volatility in bond markets around the ECB meeting this week as the communication challenge of the policy strategy is formidable,” said Andreas Billmeier, European economist at Western Asset.
US inflation data on Friday are expected to show consumer prices in the world’s largest economy rose at an annual rate of 8.3 per cent in May, the same as the previous month.
The 10-year US Treasury yield fell 0.01 percentage point to 3.03 per cent after climbing in the previous session as traders dialled up their bets of rate rises by the Federal Reserve.
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