Stocks and bonds came under pressure on Wednesday after disappointing earnings from US retailer Target weighed on market sentiment already obscured by worse-than-expected inflation data in the UK.
Wall Street’s S&P 500 stock index fell 1.1 percent by noon in New York, with travel companies the biggest decliners. Cruise shares Carnival, Norwegian Cruise Line Holdings and Royal Caribbean Cruises all fell more than 6 percent.
Shares of Target fell nearly 5 percent after the US retailer failed to meet earnings expectations for the three months to July 30, as the CEO spoke of a “very challenging environment.” The group’s figures were released just a day after earnings reports from retail chain Walmart and DIY retailer Home Depot indicated some resilience in consumer spending despite inflationary pressures hitting customers.
The tech-heavy Nasdaq Composite meter lost 1.7 percent on Wednesday.
Those moves came as investors assessed another burst of economic data, starting with higher than feared inflation rates for the UK. The country’s consumer price index registered a 10.1 percent year-on-year increase for July, surpassing the 9.4 percent mark recorded in June and above economists’ consensus forecast of a 9.8 percent increase.
The UK’s figures led to a decline in the country’s short-term debt, which is sensitive to changes in interest rates expectations as investors raised their estimates of how much the Bank of England would raise borrowing costs to curb rapid price growth.
The yield on two-year government bonds rose as much as 0.3 percentage point to 2.45 percent, the highest level since the global financial crisis in 2008. The yield on ten-year government bonds rose by no less than 0.19 percentage point to 2.32 percent. Bond yields rise when their prices fall.
That sale bounced off the debt markets of other countries, with German two-year Bund yields rising as much as 0.17 percentage point to 0.75 percent. The equivalent yield in the US also rose, rising 0.1 percentage point to 3.35 percent. The yield on the 10-year US Treasury bill, a measure of global borrowing costs, rose 0.09 percentage point to 2.92 percent.
Low trading volumes in the summer exacerbated movements in government bonds, said Lyn Graham-Taylor, Rabobank interest rate strategist. “Gilts have sold more than I expected given the news. The magnitude of that move has dragged Bunds and Treasuries down.”
He said bond markets could sell further, adding: “Central banks are less likely to blink in the face of declining growth prospects than the market is priced for.”
The UK’s dismal inflation data came just a week after US data showed the pace of consumer price growth could stabilize in the world’s largest economy.
Separate figures released on Wednesday showed US retail sales held steady month over month in July, reflecting a drop in spending at gas stations as oil prices plummeted.
Elsewhere in stock markets, the European regional Stoxx 600 closed 0.9 percent, while the German Dax fell 2 percent. In Asia, Japan’s Topix index closed 1.3 percent higher, while the Hang Seng in Hong Kong rose 0.5 percent.
Later in the session, investors will closely scrutinize the minutes of the US Federal Reserve’s latest monetary policy meeting for further clues about the central bank’s strategy to tackle inflation.
“Not all eyes will be on the UK today,” said Florian Ielpo, head of macro at Lombard Odier. “They will be on the Fed minutes. If anyone is leading the fight against inflation, it is the Fed.”
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