Stocks finished mixed Thursday, while the safe-haven dollar consolidated gains against its global peers and oil prices slumped, as investors reacted to white-hot June inflation reading that has re-set expectations for Fed rate hikes.
Stocks were also hit by a weaker-than-expected second-quarter earnings report from JPMorgan (JPM), with the biggest U.S. bank setting aside more than $1 billion to cover potential bad loan losses and CEO Jamie Dimon warning of "negative consequences" for the global economy.
U.S. inflation surged to a 41-year high of 9.1% last month, data indicated Wednesday, July 13, with core prices rising 5.9% amid a leap in gas prices, airfares and rents. The faster-than-expected reading, set against fading domestic growth prospects, powered bets on a 100 basis point rate hike at this month's Fed meeting while prompting a surge in near-term Treasury bond yields.
The CME Group's FedWatch tool is now indicating a 44% chance of a 100 basis point rate hike from the Fed on July 27, with a 33% of a 75 basis point move in September.
The Bank of Canada, meanwhile, lifted its key lending rate by 100 basis points yesterday, the largest single-day move since 1998, adding that it had "underestimated inflation" since the spring of last year and that more increases will be needed in order to tame consumer price increases.
Benchmark 2-year note yields were last seen trading at 3.138%, roughly 17 basis points north of 10-year yields, a move that tipped the so-called "inversion" of the yield curve, the market's go-to recession indicator, to the steepest since November of 2000 in early New York trading.
"As G20 ministers and central bank governors gather in Bali this week, they face a global economic outlook that has darkened significantly," IMF Managing Director Kristalina Georgieva cautioned Thursday in a blog post..
"The human tragedy of the war in Ukraine has worsened. So, too, has its economic impact especially through commodity price shocks that are slowing growth and exacerbating a cost-of-living crisis that affects hundreds of millions of people -- and especially poor people who cannot afford to feed their families," she added, "And it’s only getting worse."
Adding China's ongoing Covid struggles and a brewing energy crisis in Europe, and the odds of a global recession are starting to mount, pushing investors into safe-haven assets such as the U.S. dollar, which traded near the highest levels against a basket of its peers at 108.717 in overnight dealing.
The concern pushed global oil prices deeper in the red, pulling WTI crude for August delivery down 18 cents to a fresh three-month low of $96.09 per barrel. Domestic U.S. gas prices also extended their longest run of declines in more than two years, according to data from the AAA auto club, to a national average of $4.605 per gallon.
Stocks were marked lower overseas, as well, with Europe's Stoxx 600 falling 1.53% by the close of trading Frankfurt following on from a 0.3% slide for the Asia-region MSCI ex-Japan index.
On Wall Street, the S&P 500 fell 0.30%, while the Dow Jones Industrial Average ended down 142 points. The tech-focused Nasdaq barely squeaked into the green, gaining 0.03%.
JPMorgan shares fell 3.5% after its second-quarter miss, with Dow component Goldman Sachs (GS), which reports on Monday, falling 3%.
Tesla (TSLA) shares ended marginally higher after the carmaker said Andrej Karpathy, the group's head of full-self driving technology, is leaving the company.
Twitter (TWTR) shares fell 1.25% after it suffered a major global outage, blocking access for thousands of users. The social media company is also caught in a legal battle with Tesla TSLA CEO Elon Musk over his attempts to get out of a $44 billion takeover deal for the company.
Bucking the trend, Taiwan Semiconductor Mfg. Co. Ltd., (TSM) the world's biggest contract chipmaker and a lead supplier for Apple (AAPL) iPhones, jumped 2.9% after it posted its biggest quarterly profit jump in two years and said it was "highly confident" heading into the second half of the year.
