Risk Aversion Returns, Stocks Crash
19 May 2022
Wednesday's trading started in an optimistic mood. However, that quickly changed as investors sold equities following weak earnings reports during the US session.
Target downgraded its full-year operating income margin forecast on Wednesday, citing higher input and transportation expenses, and forecasting an extra 1 billion USD in transportation expenditures this year owing to rising gasoline prices. And this occurred after Walmart, the country's largest retailer, revealed lower-than-expected quarterly results on Tuesday and reduced its profit forecast for the year, citing increased salaries, gasoline, and food prices as reasons.
Both companies lost more than 10%, dragging the entire sector and equity indices lower. The SP500 dropped 4% to 3,925 USD, its lowest level since June 2020. The Nasdaq Composite plunged nearly 5% to 11,420 USD, while the Dow lost more than 1,100 points, or 3.6%, to close at 25,420 USD.
Fight against inflation continues
Yesterday's inflation data probably also triggered the most recent wave of risk aversion data. In April, the EU Consumer Price Index climbed by 7.4% year on year, while the UK CPI increased by 9% yearly. Finally, the Canadian benchmark reached 6.8%. Price pressures are a too excessive drag on economic development, which is already being hindered by supply-chain concerns and the Eastern European war crisis.
According to Federal Reserve Chairman Jerome Powell, attempts to curb inflation might harm the US economy, but the central bank will "keep pushing" to tighten monetary policy until inflation is clearly dropping; Powell reiterated his stance this week, not helping the overall sentiment in the markets.
Later today, ECB monetary policy meeting accounts are due. Investors will be seeking hints about when monetary policy will be tightened in the eurozone, as the ECB is way behind inflation and also lags significantly behind other central banks.
Moreover, the usual Thursday's jobless claims are on the agenda, projected to improve slightly. Last but not least, existing home sales figures will be released, expected to trend lower again.
In the FX market, the USD strengthened notably Wednesday. However, it is already erasing some gains as commodity-linked currencies lead the way higher today.