US stocks drop and bonds rally on concerns over economic growth

US stocks fell on Tuesday and government bonds rallied, as strict lockdowns in China threatened global economic growth and traders stayed cautious ahead of quarterly financial updates from some of the world’s biggest companies.

The benchmark S&P 500 lost 0.9 per cent and the technology-heavy Nasdaq Composite fell more than 1 per cent in advance of earnings after the closing bell from Microsoft and Google parent Alphabet, as investors queried whether large companies still retained adequate pricing power to deal with surging inflation. Apple, Amazon and Facebook owner Meta will post earnings later this week, alongside McDonald’s, Kraft Heinz and big banks.

“Prepare for the squeeze,” said Hani Redha, portfolio manager at PineBridge Investments.

Inflation, as well as impending interest rate rises that have been telegraphed by the US central bank, meant “consumers are getting squeezed and companies are going to feel it as they get squeezed as well,” Redha said.

“We were expecting an [economic] slowdown anyway and now China is going to add to that pretty substantially, ”he added.

The shaky start to Tuesday’s session followed a rebound late on Monday, after early falls, as panic buying gripped Beijing where residents prepared for stringent lockdown measures similar to those already implemented in Shanghai, China’s financial hub.

Late on Monday, media platform Twitter also accepted a $ 44bn bid from Elon Musk, Tesla’s chief executive.

The Twitter bid “had a positive impact on market sentiment, but it could well be temporary,” said Guilhem Savry, head of global macro at fund manager Unigestion. “For the rest of the year, central banks will be the main element driving markets, as well as geopolitics.”

The FTSE All-World index of developed and emerging market stocks is down about 3 per cent since April 21, when Federal Reserve chair Jay Powell signaled the US central bank was prepared to raise interest rates aggressively after the annual rate of consumer price increases surged to a 40-year high in March.

Global stocks also remain under pressure from Russia’s invasion of Ukraine as the war disrupts food supplies and lifts component costs for manufacturers including carmakers.

In bond markets on Tuesday, the yield on the 10-year US Treasury note – a benchmark for borrowing costs worldwide – fell 0.08 percentage points to 2.75 per cent. The yield on the policy-sensitive two-year note lost 0.09 percentage points to 2.54 per cent. Bond yields fall as their prices rise.

International oil benchmark Brent crude rose 1.7 per cent on Tuesday to just over $ 104 a barrel, but remained well below the price of almost $ 140 reached in early March on prospects of EU banning Russian oil exports – an outcome still being debated in intense talks between member states.

The US dollar index, which measures the world’s reserve currency against six others, rose 0.2 per cent to trade near its highest point since late March 2020.

In Europe, the regional Stoxx 600 share index rose 0.4 per cent. Asian markets were mixed. Chinese tech stocks listed in Hong Kong added 2.9 per cent, with the overall Hang Seng share index edging 0.3 per cent higher. However, mainland China’s CSI 300 fell a further 0.8 per cent after dropping 4.9 per cent on Monday in its worst day in more than two years.

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