U.S. stocks suffered the biggest slump in at least 11 weeks on Wednesday and benchmark Treasury yields jumped after data showed consumer prices in April unexpectedly rose by the highest level in nearly 12 years, prompting bets on earlier interest rate hikes.
A 0.8% jump in the U.S. consumer price index – outpacing a 0.2% forecast – boosted the U.S. dollar as expectations of rising real interest rates burnished the currency’s appeal.
The gyrations in financial markets underscored concerns among some investors that the Federal Reserve could be wrong in its prediction that inflation pressures in the United States are temporary, and that the central bank may have to raise rates sooner than it expects.
The prospect of tighter monetary policy knocked shares lower and the stock market steadily extended losses through the day. The Dow Jones Industrial Average shed 2%, the S&P 500 dropped 2.1%, and the Nasdaq Composite lost 2.7%. [.N]
For the S&P 500 and the Nasdaq Composite Index, Wednesday’s tumble was the biggest fall in a single day since Feb. 25, while the Dow’s decline was the sharpest in a day since Jan 29.
Richard Clarida, vice chair of the Federal Reserve, acknowledged on Wednesday that the latest inflation report was the second piece of data in a week to catch the central bank off-guard, describing it as the “biggest miss in history.”
Yet Clarida maintained the Federal Reserve’s dovish note, saying it will be “some time” before the U.S. economy is sufficiently healed for the central bank to consider pulling back its crisis-level of support.
Some investors continued to challenge the Federal Reserve’s assessment, however.
“We’ve been warning about the prospect of higher for longer inflation in the United States for many months, but even we hadn’t predicted this,” said James Knightley, chief international economist at ING Group.
“We increasingly doubt the Fed’s position that this is transitory and think they will end up hiking rates far sooner than 2024.”
Some money market investors seemed to agree. Eurodollar futures contracts expiring in December on Wednesday priced in a 25-basis-point rate hike by the end of next year, compared with 22 basis points before the inflation report.
Weakness on Wall Street mirrored stock market losses in Asia, as surging commodity prices stoked inflation concerns. MSCI’s broadest index of Asia-Pacific shares outside Japan had slumped 0.95% overnight, after hitting its lowest level since March 26.
European shares fared better. London’s blue-chip FTSE 100 rebounded 0.8% as buoyant corporate earnings and a better-than-expected economic growth report bolstered hopes about a sharp recovery from the pandemic-driven recession.
In the United States, the surprisingly strong inflation data lifted Treasury yields. The benchmark 10-year Treasury yield jumped to 1.6952%, its biggest rise in a day since March 18, and the two-year Treasury yield also rose to stand at 0.1668%. [US/]
In keeping with expectations of rising price pressures as the U.S. economy recovers from the COVID-19 pandemic, the yield curve steepened, and the spread between two- and 10-year Treasury yields widened to 152.8 basis points.
The dollar, which could benefit from rising real interest rates, gained after wobbling briefly earlier in the day.
The dollar index, which measures the greenback against six major currencies, rose 0.65% to 90.795.
A stronger dollar dented the euro, which slid 0.6% to $1.2070.
Higher Treasury yields and the stronger dollar dragged on non-yielding bullion. Spot gold slid 1.3% to $1,813.41 an ounce. [GOL/]
Hopes of rising demand on the back of an economic recovery pushed oil prices to eight-week highs.
U.S. crude jumped 1.2% to $66.08 a barrel, the highest close since March 11. Brent crude added 1.1% to $69.32 per barrel, a close last seen on March 5. [O/R]
In cryptocurrencies, ether fell after scaling a new record high overnight, dropping 2% to $4,096.01. The value of the second-biggest digital token has surged over 5.5 times so far this year.
(Reporting by Koh Gui Qing in New York, Tom Arnold in London and Swati Pandey in Sydney; Additional reporting by Sujata Rao in LondonEditing by Alison Williams and Matthew Lewis)
G7 nations to boost climate finance
G7 leaders agreed on Sunday to raise their contributions to meet an overdue spending pledge of $100 billion a year by rich countries to help poorer countries cut carbon emissions and cope with global warming, but only two nations offered firm promises of more cash.
Alongside plans billed as helping speed infrastructure funding in developing countries and a shift to renewable and sustainable technology, the world’s seven largest advanced economies again pledged to meet the climate finance target.
But climate groups said the promise made in the summit’s final communique lacked detail and the developed nations should be more ambitious in their financial commitments.
In the communique, the seven nations – the United States, Britain, Canada, France, Germany, Italy and Japan – reaffirmed their commitment to “jointly mobilise $100 billion per year from public and private sources, through to 2025”.
“Towards this end, we commit to each increase and improve our overall international public climate finance contributions for this period and call on other developed countries to join and enhance their contributions to this effort.”
After the summit concluded, Canada said it would double its climate finance pledge to C$5.3 billion ($4.4 billion) over the next five years and Germany would increase its by 2 billion to 6 billion euros ($7.26 billion) a year by 2025 at the latest.
There was a clear push by leaders at the summit in southwest England to try to counter China’s increasing influence in the world, particularly among developing nations. The leaders signalled their desire to build a rival to Beijing’s multi-trillion-dollar Belt and Road initiative but the details were few and far between.
Johnson, host of the gathering in Carbis Bay, told a news conference that developed nations had to move further, faster.
“G7 countries account for 20% of global carbon emissions, and we were clear this weekend that action has to start with us,” he said as the summit concluded.
“And while it’s fantastic that every one of the G7 countries has pledged to wipe out our contributions to climate change, we need to make sure we’re achieving that as fast as we can and helping developing countries at the same time.”
Some green groups were unimpressed with the climate pledges.
Catherine Pettengell, director at Climate Action Network, an umbrella group for advocacy organisations, said the G7 had failed to rise to the challenge of agreeing on concrete commitments on climate finance.
“We had hoped that the leaders of the world’s richest nations would come away from this week having put their money their mouth is,” she said.
Developed countries agreed at the United Nations in 2009 to together contribute $100 billion each year by 2020 in climate finance to poorer countries, many of whom are grappling with rising seas, storms and droughts made worse by climate change.
That target was not met, derailed in part by the coronavirus pandemic that also forced Britain to postpone the U.N. Climate Change Conference (COP26) until later this year.
The G7 also said 2021 should be a “turning point for our planet” and to accelerate efforts to cut greenhouse gas emissions and keep the 1.5 Celsius global warming threshold within reach.
European Commission President Ursula von der Leyen said the G7 leaders had agreed to phase out coal.
The communique seemed less clear, saying: “We have committed to rapidly scale-up technologies and policies that further accelerate the transition away from unabated coal capacity, consistent with our 2030 NDCs and net zero commitment.”
The also pledged to work together to tackle so-called carbon leakage – the risk that tough climate policies could cause companies to relocate to regions where they can continue to pollute cheaply.
But there were few details on how they would manage to cut emissions, with an absence of specific measures on everything from the phasing out of coal to moving to electric vehicles.
Pettengell said it was encouraging that leaders were recognising the importance of climate change but their words had to be backed up by specific action on cutting subsidies for fossil fuel development and ending investment in projects such as new oil and gas fields, as well as on climate finance.
British environmentalist David Attenborough appealed to politicians to take action.
“We know in detail what is happening to our planet, and we know many of the things we need to do during this decade,” he said in a recorded video address to the meeting.
“Tackling climate change is now as much a political and communications challenge as it is a scientific or technological one. We have the skills to address it in time, all we need is the global will to do so.”
($1 = 1.2153 Canadian dollars)
(Reporting by Elizabeth PiperAdditional reporting by William James and Kate Abnett in Brussels and Andreas Rinke in BerlinEditing by William Maclean, Raissa Kasolowsky and Frances Kerry)
Canadian dollar goes up from Friday’s 4-week low
The Canadian dollar edged higher against its U.S. counterpart on Monday as oil prices climbed and investors looked past domestic data showing factory sales falling in April, with the loonie clawing back some of Friday’s decline.
“Zooming out from the disruptions seen in the auto industry, the outlook for manufacturing sales is not all that bad,” Omar Abdelrahman, an economist at TD Economics, said in a note.
“The reopening of provincial economies and strength in Canada‘s largest export market (the U.S.) should provide a lift to demand,” Abdelrahman added.
The price of oil, one of Canada‘s major exports, was supported by economic recovery.
U.S. crude prices rose 0.9% to $71.56 a barrel, while the Canadian dollar was trading 0.2% higher at 1.2143 to the greenback, or 82.35 U.S. cents. On Friday, it fell to its weakest since May 14 at 1.2177.
Speculators have cut their bullish bets on the Canadian dollar, the strongest G10 currency this year, data from the U.S. Commodity Futures Trading Commission showed on Friday. As of June 8, net long positions had fallen to 45,281 contracts from 48,772 in the prior week.
A stronger Canadian dollar is usually seen hurting exporters, but the nature of the global economic recovery could help firms pass on their higher costs from the currency to customers, leaving exporters in less pain than in previous cycles.
Investors were awaiting a Federal Reserve policy announcement on Wednesday. Expectations that the Fed would stick to its dovish course have helped cap U.S. and Canadian bond yields.
Canada‘s 10-year yield touched its lowest level since March 3 at 1.365% before recovering to 1.381%, up 1.3 basis points on the day.
(Reporting by Fergal Smith; Editing by Bernadette Baum)
Toronto stock exchange dips as losses in miners
Toronto stock exchange index edged lower on Monday, as losses in mining stocks and dismal domestic manufacturing data overshadowed gains in energy stocks.
* The materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.7% as gold futures fell 1.6% to $1,848.2 an ounce. [GOL/]
* Canadian factory sales slipped by 2.1% in April from March on lower sales of transportation equipment, as well as subdued petroleum and coal products sector, Statistics Canada said.
* At 9:43 a.m. ET (13:43 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 14.52 points, or 0.07%, at 20,123.83.
* The energy sector climbed 1.4% as U.S. crude prices were up 1% a barrel, while Brent crude rose 0.9%. [O/R]
* Financials slipped 0.3%, while industrials fell 0.1%.
* On the TSX, 120 issues were higher, while 107 issues declined for a 1.12-to-1 ratio favouring gainers, with a trading volume of 22.35 million shares.
* TSX’s top gainers were paper and packaging company Cascades Inc <CAS.TO> and IT firm Kinaxis Inc <KXS.TO>, jumping 4.1% and 4.0%, respectively.
* Biggest decliners were uranium producers Nexgen Energy Ltd <NXE.TO>, down 5.9%, followed by Cameco Corp falling 5.5%.
* The most heavily traded shares by volume were Canadian Natural Resources Limited <CNQ.TO>, BCE Inc <BCE.TO>, and Hut 8 Mining Corp <HUT.TO>
* Twenty-two stocks hit fresh 52-week highs on the TSX, while there were no new lows.
* Across all Canadian issues, there were 95 new 52-week highs and four new lows, with total volume of 43.57 million shares.
(Reporting by Amal S in Bengaluru; Editing by Rashmi Aich)
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