Stock markets fall over renewed growth and inflation concerns

Global stock markets dropped on Tuesday as downbeat surveys on business confidence and weak earnings from social media group Snap intensified concerns about the global growth outlook.

On Wall Street, the technology-heavy Nasdaq Composite share index dropped 2.3 per cent, while the S&P 500 — which bounced almost 2 per cent higher on Monday following seven consecutive weeks of losses — lost 1.2 per cent.

Investors’ nerves were rattled after social media group Snap said late on Monday that the “macroeconomic environment has deteriorated further and faster than anticipated” since it issued guidance in April. Shares in the Snapchat parent, one of a group of social media businesses that soared during coronavirus lockdowns, fell 37 per cent in early dealings.

Facebook owner Meta was down 8 per cent. Twitter dropped 2 per cent and Pinterest fell 20 per cent. Google parent Alphabet fell 6 per cent. Analysts at JPMorgan said they “believe Snap’s cautious tone creates further downside risk to other online ad estimates” and that Google, Meta and Pinterest “may be experiencing similar headwinds”.

On Tuesday, Best Buy joined other leading US retailers in cutting its full-year earnings forecast, despite the electronics chain reporting better than expected sales. Clothing retailer Abercrombie & Fitch also cut its annual sales and margin expectations because of surging costs, sending its shares plunging by around 30 per cent. The disappointing updates came after US consumer bellwethers Target and Walmart issued similarly grim outlooks last week.

“These large companies are telling us inflation is high and it is hurting consumer spending,” said Marija Veitmane, multi-asset strategist at State Street. “Looking at their guidance, they also don’t think its going to improve very quickly.”

Meanwhile, purchasing managers’ indices for major economies, released on Tuesday, further highlighted how businesses were struggling with higher costs.

German businesses were “hiking their charges for goods and services to offset the higher cost of energy, fuel, raw materials and personnel,” according to a report accompanying S&P Global’s May flash PMI for the dominant eurozone economy.

Japanese manufacturing activity was also expanding at its slowest pace in three months, according to an equivalent PMI survey for the Asian nation, which its compilers blamed on “supply chain disruptions” from “economic sanctions placed on Russia” and lockdown measures across China.

“The economic cycle is likely to be slowing down to a rapid extent,” said Zehrid Osmani, manager of Martin Currie’s global portfolio trust.

“What we see in these PMIs is that, with supply chain issues and inflation, nothing is yet fixed,” added Bastien Drut, chief thematic macro strategist at CPR Asset Management. China’s lockdowns and the Ukraine war, he added, were “feeding inflation in the US and Europe and that’s not going to stop anytime soon”.

Europe’s regional Stoxx 600 share index, which has lost more than a tenth so far this year, fell 0.5 per cent. Hong Kong’s Hang Seng share index closed 1.8 per cent lower and the Nikkei in Tokyo lost 0.9 per cent.

In another sign of growth jitters, the yield on the 10-year US Treasury note, which moves inversely to the price of the benchmark debt security, fell 0.06 percentage points to 2.79 per cent as traders bought up the low-risk asset. Germany’s equivalent Bund yield fell 0.03 percentage points to 0.99 per cent.

In currencies, sterling dropped 0.7 per cent against the dollar to just below $1.25 after the PMI survey for the UK showed growth in the nation’s manufacturing and services activity had slowed to the lowest rate in more than a year.

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