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May 12, 2021

Inflation fears rout global equity markets

May 12, 2021

London: Equity markets across the world tumbled on Tuesday as a fierce global selloff erupted on fears over spiking inflation, dealers said.

Wall Street stocks tumbled in opening trading on Tuesday, adding to the prior session´s retreat on worries about excess valuation and inflation.

Tech shares, which surged during much of the coronavirus pandemic, continued to see pressure as investor interest shifts to sectors expected to thrive in a reopened economy.

"Valuation always matters," analyst Patrick O´Hare said. "It might be disregarded or rationalized to some ridiculous extent for awhile, but ultimately, it always matters."

About 35 minutes into trading, the Dow Jones Industrial Average was down 0.8 percent at 34,475.66.

The broad-based S&P 500 also fell 0.8 percent to 4,156.48, while the tech-rich Nasdaq Composite Index dropped 0.9 percent to 13,284.28.

All three major indices fell Monday, with the Dow snapping a three-day streak of records and the Nasdaq sinking 2.6 percent.

Among individual companies, L Brands fell 3.0 percent after it announced it would split Bath & Body Works and Victoria´s Secret into two companies.

"The spin-off will enable each company to maximize management focus and financial flexibility to thrive in an evolving retail environment and deliver profitable growth," the company said.

London stocks dived 3.0 percent, Frankfurt slumped 2.5 percent and Paris shed 2.3 percent in afternoon deals.

"European stocks are tanking lower after a weak handover from Wall Street" on Monday, said OANDA analyst Sophie Griffiths.

"Inflation concerns sent tech stocks tumbling overnight, and the sector has come under pressure in Europe today."

Traders are fearful that surging inflation could force the world´s central banks to wind back ultra-loose monetary policies earlier than forecast and damage post-Covid recovery. Asia took a battering after New York was gripped Monday by a wave of selling, particularly in the tech sector which is vulnerable to higher borrowing costs due to the potential effect on future earnings and cash flow.

The Dow snapped a three-day streak of records and the S&P 500 lost more than one percent, while the Nasdaq shed 2.6 percent.

Asia followed the lead, with tech firms at the forefront of the selling.

Tokyo and Taipei each dropped more than 3.0 percent, while Hong Kong was off 2.0 percent.

Wall Street continued to fall at the opening bell on Tuesday, with the Dow dropping 0.9 percent. The S&P 500 lost 1.3 percent and the Nasdaq tumbled 2.2 percent.

Analyst Patrick O´Hare at said that markets are "wrestling with the general sentiment that most stocks are overextended and due for a pullback, if not an actual correction."

US stock indices have soared to new heights on the prospects of a rebound in the economy, but there are concerns that share prices may have risen too far.

"This is a cutting of the fat," O´Hare said. "It´s also a reminder that valuation always matters."

All eyes are now on the release this week of crucial data on US retail sales and consumer prices, with expectations for a sharp rise as the world´s top economy reopens and vaccines allow people to return to a sense of normality.

A massive miss on US jobs creation last week that indicated the recovery was not going to be as smooth as thought provided some relief from fears of a quick rise in central bank rates.

But a rally in commodities -- particularly widely used copper and iron ore -- has markets concerned that costs will spiral.

Signs that this is having an effect were seen in data from China that showed prices paid at the country´s factory gates rose last month at their fastest pace in almost four years.

"Inflation is what keeps investors up at night," said Swissquote analyst Ipek Ozkardeskaya.

"And the latest Chinese figures did not help soothing investors´ nerves."