WORLD MARKET SEES SELL OFF, TRIGGERED BY INFLATION WOES

The Euro STOXX 600 fell 1.5%, with indexes in Germany and Britain both slumping 1.9% as investors worried the U.S. Federal Reserve might move early on tightening its ultra-loose monetary policy. The MSCI world equity index, which tracks shares in almost 50 countries, fell 0.6% and was on course for its fourth straight day of losses.

Wall Street was blindsided on Wednesday when data showed U.S. consumer prices jumped by the most in nearly 12 years in April as booming demand amid a reopening economy met supply constraints at home and abroad. The jump, which sparked the S&P 500’s worst one-day drop since February, was largely due to outsized increases in airfares, used cars and lodging costs, all driven by the pandemic and likely to prove transitory. Basic resources and oil and gas sectors, among the recent top gainers on the back of a surge in commodity prices, fell over 2%. However, Fed officials were quick to play down the impact of one month’s numbers.

Yields on 10-year Treasuries steadied at 1.68%, having climbed 7 basis points overnight in the biggest daily rise in two months. Eurozone bond yields edged higher. Germany’s 10-year yield, the benchmark for the region, was flat after hitting its highest since May 2019 on Wednesday. The dollar index bounced to 90.777 =USD from a 10-week trough of 89.979.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 1.3%, with Asian shares already on the back foot this week after a tech sell-off on Wall Street. Rising bond yields were a shot in the arm for the dollar, recently under pressure from rapidly expanding U.S. budget and trade deficits. Indian market continue to see sell off as well, on Thursday Indian market continue to fall as well, NIFTY shed 1.04% and SENSEX loose almost 1% by day’s close.

Somewhat the upward trend seems to be halted for a while. Overpricing and the steep rise in prices in short span also led to profit booking. On Thursday the news of bigger-than-expected rise in U.S. inflation spooked Wall Street and sent bond yields surging, with European stocks mirroring losses in Asia. So it’s really going to be interesting to watch out market behaviour, as this year is going to be a big battle between the bullishness of mass reopening/stimulus on one hand and the inflationary consequences on the other.