Opening Bell: Markets Sell Off As Inflation Persists; Bitcoin Falters

 | May 12, 2022 07:04

  • US CPI remains elevated
  • Bitcoin plunges
  • US yield curve flattens
    • h2 Key Events/h2

    On Thursday, Dow Jones, S&P 500, NASDAQ 100, and Russell 2000 futures extended the previous day's selloff of the underlying gauges, and European shares also slumped.

    Persistent inflation in the US dispelled any hopes that the Federal Reserve would ease its pace of policy tightening, ending the most accommodative monetary policy in history.

    Crashing cryptocurrencies made a bad situation worse, as retail traders panicked, proving that this asset class is neither a haven nor a store of value.

    h2 Global Financial Affairs/h2

    Although all four leading indices contracts were in red, technology stocks, continue to underperform. The S&P 500 and the Dow Jones fell to their lowest levels since March 2021, while the NASDAQ 100 and Russell 2000 indices dropped to their lowest since November 2020. The S&P 500 and NASDAQ topped out.

    In Europe, the STOXX 600 sold off and the pan-European index reached its lowest level since Mar. 8. If it closes 0.75% lower than yesterday, it will be the weakest close since March 2021. European natural gas prices jumped on a possible supply disruption from Russia while raw materials underperformed.

    In the UK, the FTSE 100 opened lower, recovered slightly and then slumped again. Britain's GDP shrunk by 0.1% in March, exacerbating stagflation worries —a slowing economy with high inflation and high unemployment—as inflation remains high. This economic condition is difficult for policymakers as the tools required to tame inflation exacerbate unemployment. The FTSE 100 fell back below its 100 DMA, and the 50 DMA crossed below its 100 counterparts.

    Asian markets took their lead from Wall Street which slid yesterday after the release of worse than expected CPI figures. In Hong Kong, the Hang Seng plummeted 2.25%. The index was also dented by the dramatic arrest of a prominent democracy advocate which raised concerns of additional crackdowns.

    The CPI release as well as comments from the Federal Reserve Bank of Atlanta President Raphael Bostic that he was happy to "move more" on raising rates saw Treasuries across the curve—maturing dates—climb. The 10-year note erased ten basis points. However, the curve flattened, with the spread between 2-year and 10-year narrowing, increasing the chances of an inversion, a leading recession indicator.