Global stocks tumble as inflation worries linger

Concerns about rising inflation on economic growth soured sentiment, as global stocks plunged and the dollar strengthened for the first time in four sessions on Wednesday.

The mood was highlighted by a 9% surge in British consumer prices and a faster than expected acceleration in inflation in Canada.

British inflation went to its highest annual rate since 1982, as energy bills soared, while Canadian inflation went up to 6.8% last month, largely driven by rising food and shelter prices, according to Statistics Canada data.

Inflation in Britain is now the highest among major economies in Europe, but prices are rising rapidly, forcing central banks around the world to hike interest rates and tamp down growth as suggested by a modest decline in U.S. homebuilding in April.

Homebuilding, the sector of the economy most sensitive to rates, has been hit by soaring prices and material shortages. A decline in homebuilding may be marginal, according to the U.S. Commerce Department report.

The earnings of Target Corp, whose quarterly profit halved as it warned of a bigger margin this year due to rising fuel and freight costs, added to the gloom caused by inflation.

Target shares plummeted 24.88%, its biggest one day drop since the Black Monday stock market crash on October 19, 1987, a day after Walmart Inc warned of similar margin squeezes and saw its stock drop 11.4% for its biggest one-day percentage fall since Oct. 16, 1987.

Dennis Dick, head of markets structure and a proprietary trader at Bright Trading LLC in Las Vegas, said it was Walmart yesterday and everyone thought it was a one-off. Now that Target misses earning a lot more than Walmart, they're afraid that consumer is not as strong as everyone thinks it is. The MSCI's index of stocks shed 2.74%, while the pan-regional STOXX 600 index closed down 1.14% in Europe.

The Dow Jones Industrial Average fell by 3.56%, the S&P 500 fell 4.03% and the Nasdaq Composite dropped 4.73%, according to Wall Street.

The S&P 500 and Dow have had their biggest decline in a single day since June 11, 2020.

Given the magnitude of macroeconomic uncertainty, few analysts are willing to predict the end of selling after a bruising first five months of the year for risk assets, with many expecting market volatility to be the norm for some time.

The U.S. dollar gained ground as the sell-off in risk assets boosted the safe-haven appeal of the dollar, which was on pace to snap a three-session losing streak, a day after Fed Chair Jerome Powell pledged that the central bank would raise rates as high as needed to combat rising inflation.

The dollar index rose 0.581%, with the euro down 0.8% to $1.0463. The Japanese yen increased by 0.92% to 128.23 per dollar.

Treasury yields fell, although a steep path for rates remained the dominant market consensus as the benchmark 10 year note yield hit a one-week high of 3.015% after Powell made hawkish comments.

The yield fell by 8.1 basis points to 2.890% on Wednesday after a soft U.S. housing starts number.

The German government bond yield went to 0.444%, its highest since November 2011 after more hawkish central banker comments, and last was up 1.6 basis points at 0.386%. The European Central Bank's Klaas Knot said on Tuesday that a 50 basis-point rate hike in July is possible if inflation is broadens.

Despite the risk-off environment, gold prices were little changed despite a resurgence in the U.S. interest rate hikes and a reversal of the dollar.

Spot gold was up 0.1% at $1,816. An ounce is 06 an ounce.

Oil prices dipped in volatile trade, reversing early gains as traders began to worry about a supply crunch after government data showed U.S. refiners ramped up output. U.S. crude settled down 2.5% at $109.59 per barrel and Brent settled at $109.11, down 2.52% on the day.