Shares fell on Tuesday after US retailer Target slashed its profit outlook for the second time in weeks, raising fears of a recession due to soaring inflation and rising interest rates.
Wall Street’s S&P 500 blue-chip stock index, which has posted weekly losses for eight of the past nine weeks, lost 0.9 percent in early-year New York trades, with retailers suffering some of the heaviest declines.
Stocks in Target fell more than 5% after group warning it will have to move excess stock at a deeper discount, in a move that is expected to reduce its second-quarter operating profit margin to about 2%. Last month, the group estimated the rate at around 5.3%.
The warning has spooked investors, who are watching for signs from US businesses that inflation, rising mortgage costs and the Federal Reserve’s plans for aggressive rate hikes will take a toll. consumer spending and ultimately push the world’s largest economy into recession.
“It is possible that consumer spending is sustained and inflation is falling rapidly enough to keep the U.S. economy afloat,” said Joost van Leenders, equity strategist at Kempen Capital Management.
“Similarly, there is a possible story that inflation remains high, the Fed has to do more and there is a recession,” he added.
US Inflation Friday’s data is expected to show consumer prices in the world’s largest economy rose at an 8.3% annual rate in May, the same as the previous month. Money markets expect the Fed to raise its key deposit rate by half a percentage point at its June and July meetings, with some policymakers signaling a rate hike will last until September.
Target’s warning sent shares of rival Walmart down 2.5% and resonated in Europe, with German fashion group Zalando falling nearly 6% and department store group Marks and Spencer’s He lost 5%.
After a short-term rally On Monday, as China eased some Covid-19 restrictions, Europe’s regional Stoxx 600 stock index lost 0.7%.
The FTSE All-World index of global stocks has fallen more than 14% this year as central banks around the world increase borrowing costs to counter inflationary trends that began with a supply chain breakdown related to the coronavirus and were exacerbated by rising commodity prices due to Russia’s invasion of Ukraine.
“We have priced in what we know so far, and we need to be ready to price an improvement or lack of one,” said Marco Pirondini, head of US equities at Amundi. “At the end of summer, if we are still in high inflation and [oil] sanctions against Russia, then the market has to correct further”.
In government debt markets, Germany’s 10-year package yield, a benchmark for borrowing costs in the eurozone, fell 0.03 percentage points to 1.3%.
The move comes ahead of the European Central Bank’s monetary policy meeting on Thursday, which is expected to signal plans to lift borrowing costs, while also warning of the economic impact of the eurozone. Inflation and the Ukraine War.
Andreas Billmeier, Europe economist at Western Asset, said: “We anticipate significant volatility in the bond markets around this week’s ECB meeting because of the communication challenge of the main strategy. the book is huge”.
Yields on the 10-year US Treasury note fell 0.04 percentage points to 3 percent as recession fears sent traders flocking to haven assets. The dollar index, which measures the US currency against six other currencies, was up 0.2%.