NEW YORK/LONDON (Reuters) – Global stocks pulled back from two-month highs and the safe-haven dollar weakened on Wednesday after stronger-than-expected U.S. retail sales clouded inflation expectations and hopes the Federal Reserve would soften its forecasts. A sharp rise in interest rates.
Stocks in Europe pared losses overnight in Asia after the Polish president said the missile that hit his country may have been a stray Ukrainian defense missile, dispelling fears that it came from Russia.
US stocks were hurt by Target Corp’s poor holiday sales outlook (TGT.N) Investors took advantage of the weak inflation data to take profits due to the weak economic backdrop in Europe and China.
But better-than-expected US retail sales last month may help support the US economy in the coming months and may force the Fed to maintain its strong interest rate stance despite cooler-than-expected inflation data this week and past.
“Weak inflation data took some wind out of the dollar’s sails,” said Joe Manimbo, senior market analyst in Convera, Washington.
“The dollar is more stable because we have this remaining geopolitical volatility as well as signs of a somewhat strong backbone for the US economy in the forms of US retail sales.”
Retail sales rose 1.3 percent in October, more than the 1.0 percent increase expected by economists in a Reuters poll.
The dollar trimmed losses briefly after the release of the retail sales data, but later fell against the euro and major trading currencies.
The euro rose 0.44% to $1.0394, while the yen fell 0.21% against the dollar at 139.60.
Jim Reed, a strategist at Deutsche Bank, said the initial reaction to the news of a missile hitting Poland was understandable but dissipated because “it quickly became clear that this was unlikely to be a direct attack”.
Stocks fell in Europe, with the STOXX 600 (.STOXX) It fell 0.97%, dragged down by the auto sector after a report that Germany’s Mercedes-Benz cut electric car prices in China as sales lagged.
MSCI World Index for all countries (.MIWD00000PUS) It is down 0.66% from the two-month high it hit on Tuesday.
On Wall Street, the Dow Jones Industrial Average (.DJI) The S&P 500 fell 0.04% (.SPX) The Nasdaq Composite Index lost 0.60% (nineteenth) decreased by 1.31%.
Long-term Treasury yields fell and a reversal deepened in key parts of the yield curve after a strong retail sales report reinforced expectations that the Fed will continue to raise interest rates, thus likely hurting economic growth.
The yield on the 10-year Treasury note fell 6.9 basis points to 3.731%.
The gap between the two- and 10-year bond yields, which is seen as a harbinger of a recession, was at -63.9 basis points.
“We continue to see the Fed on a bold path to raise interest rates to bring down inflation, which is still very fast,” said Manimbo.
US crude recently fell 2.61% to $84.65 a barrel, and Brent crude hit $92.03, down 1.95% on the day.
Spot gold fell 0.2% to $1,775.05 an ounce. US gold futures rose 0.29% to $1,778.90 an ounce.
Bitcoin price last fell 2.6% to $16,436.00.
Additional reporting by Shriyashi Sanyal in Bengaluru, Ankur Banerjee in Singapore, and Shi Yu; Editing by Edwina Gibbs, Edmund Kellman, Simon Cameron Moore, John Stonestreet, Barbara Lewis, William Maclean
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