European stocks slid and U.S. shares wavered on Wednesday as the outlook for rate hikes sullied sentiment, while bond yields rose after euro zone gross domestic product beat expectations, adding to bets of a more hawkish European Central Bank.
Trading was choppy as investors awaited the ECB meeting on Thursday and U.S. consumer price data on Friday that will highlight the dilemma investors face as they juggle how much central banks tighten policy and its impact on inflation.
Investors are worried about the economic outlook and its effect on results. Citi Research analysts cautioned that Intel Corp could pre-announce weaker-than-expected earnings for the second quarter. Intel’s shares fell 4.1%.
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Target roiled markets on Tuesday when the retailer cut its profit margin forecast after reporting a much steeper drop in quarterly profit in May than expected. Other companies will follow and challenge second-quarter results, said Philip Orlando, chief equity market strategist at Federated Hermes.
“The market is rolling over here and will at a minimum recast that 3800 level that we saw in early May over the course of the next couple of months, and it may go a little bit below that,” he said. He called the recent rally a dead cat bounce.
The pan-European STOXX 600 index lost 0.67% while MSCI’s gauge of stocks across the globe shed 0.02%.
On Wall Street, the Dow Jones Industrial Average fell 0.25%, the S&P 500 lost 0.22% and the Nasdaq Composite added 0.21%.
Data showed the euro zone economy grew much faster in this year’s first quarter than the previous three months, despite the war in Ukraine, the European Union statistics office said, as it revised earlier estimates sharply higher.
Investors raised their bets on ECB rate hikes, and money markets priced in 75 basis points of rate hikes by September.
U.S. Treasury yields rose after the GDP data beat expectations, adding to bets of a more hawkish ECB.
The yield on 10-year Treasury notes was up 3.5 basis points to 3.005%.
The euro hit a seven-year peak against the yen, getting a lift from the upward revision to first quarter growth. The euro was up 0.33% to $1.0734, while the dollar index fell 0.068%.
The dollar slipped against a basket of major currencies for a second straight day but still managed to hit a fresh 20-year high against the yen. The yen weakened to hit 134.47 per dollar, its softest since Feb. 27, 2002.
The Organization for Economic Cooperation and Development slashed its growth outlook to 3% this year from its 4.5% forecast in December and raised its inflation estimates – though it said there was a limited risk of “stagflation”.
Asian stocks strengthened overnight, with Chinese stocks seeing some relief from easing of COVID-19 restrictions, but sentiment was volatile and European indexes fell soon after opening.
Japan’s economy shrank slightly less than initially reported in the first quarter, as private consumption remained resilient and companies rebuilt inventories.
German industrial production recovered but rose by less than expected in April.
Oil prices rose about 1% as U.S. crude hit a 13-week high despite a rise in domestic crude inventories, as supplies looked likely to tighten with China easing lockdowns and Norwegian oil workers planning to strike.
U.S. crude rose 1.53% to $121.24 per barrel and Brent was at $122.63, up 1.71% on the day.