• Trish Matson

US Equity Sell Off Follows Inflation Report

US equities saw big sell offs on Wednesday as the latest consumer price index report showed much faster than expected inflation. The losses were limited to the US, however, as European investors overlooked the news in favour of strong commodity prices and earnings results. China and Hong Kong markets gained ground while Japan and others fell further.

US inflation takes off, equities head back down to earth US investors were spooked by Wednesday's Labor Department report, which showed core consumer prices increased by +3.0% y/y and +0.9% m/m in April, well ahead of consensus expectations of +0.3% m/m and the largest monthly increase since April 1982. The headline consumer price index inflation is running at an annualised +5.0% y/y pace when excluding the April base effect. The 10-year

US Treasury bond yield rose 8bp to 1.68% while the US dollar rose. Major equity indices all sank. The S&P 500 added to yesterday's -0.9% loss with a further -1.9% decline, the Dow Jones shed -1.4%, the Nasdaq lost -2.3% and the Philadelphia Semiconductor Index

fell -3.9%. All sectors apart from energy were in the red. The consumer discretionary (-2.6%) and information technology (-2.6%) sectors weighed the most due to their high growth components. Amazon shed -2.7% and Tesla dropped -2.8%. VMware tumbled

-2.9%, despite posting a positive earnings result. Hertz zoomed +62.5% higher after announcing the winners of a bidding war to lead the firm's recapitalisation, which should help it exit bankruptcy protection by the end of June.

Europe shrugs off US inflation woes The Stoxx 600 increased +0.3%, pushed by positive earnings results as investors looked past strong inflation indicators in the US.

Commerzbank's (+6.3%) results beat expectations. Just Eat Takeaway shed -3.7% after rival Delivery Hero (-6.1%) announced plans to re-enter the German market. Pharma and chemical group Bayer (+7.2%) reported a rise in quarterly net profit and reiterated its

FY21 earnings forecasts. The FTSE 100 gained +0.7%, backed by strong commodity prices and +2.1% GDP growth in March as the UK entered the early stages of its reopening. Oil prices hit a two-year high as US inventories and exports declined while forecasters

predicted strong demand growth, boosting BP (+3.5%) and Shell (+3.2%). Diageo climbed +3.4% after guiding to growth of at least 14% in FY21 and resuming its capital return programme.

Australia has no plans to extend border reopening The Hang Seng (+0.8%) was boosted by +6.1% rebounds in both Alibaba ahead of today's result and Xiaomi after the US set aside a

ban on investments in companies with ties to the US military. The Taiwan SE finished down -4.1% having fallen -8.6% intraday as the government mulled tightening COVID-19 controls. The Nikkei (-1.6%) and Kospi (-1.5%) fell. The ASX 200 slipped -0.7%. Banks including Westpac (-1.2%) and Macquarie (-1.1%) fell, while Commonwealth Bank (+1.1%) rose after releasing a strong result. The government ruled out reopening its borders beyond New Zealand in the near-term, sending Flight Centre (-4.5%), Qantas (-3.4%) and Webjet (-2.9%) lower. Electricity and gas network operator AusNet fell -7.7% following a disappointing result. The NZX 50 lost -0.5%.

WTI crude up, gold and iron ore down WTI crude gained +1.7% to US$66.37/bbl. Gold shed -0.8% to US$1,823.04/oz while iron ore inched down -0.1% to US$215.29/MT.

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