Inflationary pressure remain rampant across the globe as markets struggle to bounce off bear market lows, with a rising oil price a potential complication to consumer spending.
U.S. stocks fell in see-saw trading Tuesday as investors closed out a rocky month that saw the S&P 500 flirt with bear-market territory amid inflation and recession fears.
The Dow Jones Industrial Average fell 222.84 points, or 0.7%, to close at 32,990.12. The S&P 500 dipped 0.6% to 4,132.15. The Nasdaq Composite eased 0.4% to 12,081.39. The technology-heavy index was up 0.5% at its highs and down nearly 1.6% at its lows. The Dow is 10.7% below its record. The S&P 500 is down 14.2%, and the Nasdaq is off by 25.5%.
Tuesday’s market action underscored fears that high inflation is weighing on economic growth. In Europe, euro zone inflation readings released Tuesday hit a record high for a seventh straight month, surging 8.1% in May. Economists expect eurozone inflation to continue its upward trend in the coming months, as energy and food prices rise due to Russia’s war in Ukraine.
Energy stocks comprised the worst-performing S&P 500 sector Tuesday, after being the biggest gainer earlier in the session. Chevron slid 2%, and Schlumberger fell 4.3%. The S&P 500 index’s consumer discretionary and consumer staples sectors are each heading for a drop around 4.5% in May. Only real estate is on pace to fare worse, with losses of 5%. For retail companies like Target Corp their shares fell 28% in May, on pace for their worst month since October 1987
The oil price was off its high of $US120 a barrel intra-day to close lower on the day . The oil price will be an important barometer to watch moving forward Higher oil prices could mean trouble for the stock market. If the price of oil remains elevated, it could add to inflation.
The Fed’s job becomes particularly difficult if oil prices are high enough to disrupt consumer spending. Higher inflation traditionally makes the Fed more likely to lift rates, which hurts demand. But if higher oil is already hurting demand and, on top of that, the Fed lifts rates rather quickly, many will fear that recession is imminent. The surge in oil prices can put the economy into recession,” one analyst said “Do they [the Fed] want to make it worse?” Higher inflation and slower growth are now the consensus view but that doesn’t mean its fully discounted – the more equity prices rise, the more hawkish the Fed will be.
Energy, more specifically oil, has historically moved very closely with inflation given the higher weight in the CPI inflation basket and the flow on effects as this commodity is used in all parts of the economy. It will be important to watch this commodity as inflation talk heats up – with no other commodity having the ability to directly impact consumer sentiment
In Australia today, ASX futures are pointing to 27 basis points or 0.4 per cent fall to 7185
First-quarter GDP will be released at 11.30am
There are three companies set to trade without the right to its dividend.
NB Global Corporate Income Trust (ASX:NBI) is paying 0.8049 cents unfranked
United Malt Group (ASX:UMG) is paying 1.5 cents unfranked
VGI Partners (ASX:VGI) is paying 39.7139 cents full franked
There are two companies set to pay eligible shareholders today
Dicker Data (ASX:DDR)
Sandon Capital Investments (ASX:SNC)
There is one company set to make its debut on the ASX today. Keep an eye out for Nordic Nickel (ASX:NNL) after raising $12 million at 25 cents per share (Mineral Exploration)
Iron ore has lost 0.1 per cent to US$136.50. Its futures point to a 0.2 per cent gain.
Gold has lost $16.60 or 0.9 per cent to US$1841 an ounce. Silver was down $0.55 or 2.5 per cent to US$21.55 an ounce.
Oil has added $0.17 or 0.2 per cent to US$115.24 a barrel.
One Australian Dollar at 7:05 AM has weakened since yesterday, buying 71.79 US cents (Tue: 71.99 US cents), 56.98 Pence Sterling, 92.39 Yen and 66.82 Euro cents.