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GLOBAL MARKETS-Stocks down, bond yields down on growth concerns

(Oil, gold reconciliation prices added)

* Stocks slide with bearish gains and economic data

* China talks about stimulus, but the economic damage has already been done

* Euro closes to 4-week high as Lagarde points to July rate hike

by Herbert Lash and Lawrence White

NEW YORK/LONDON, May 24 (Reuters) – Stocks slumped worldwide on Tuesday as supply chain woes and rising costs hurt company earnings and production output slowed, and Treasury yields fell as weakness in equities revived a safe-haven bid for US government debt.

A two-day rally of relief in equities ended as investors realized profit margins were tightened by supply problems worsened by the Ukraine war and rising inflation forcing consumers to cut back on discretionary spending.

S&P Global attributed the decline in the US Composite PMI Output to “increasing inflationary pressures, further deterioration in supplier delivery times and weak demand growth”.

Abercrombie & Fitch Co said it will continue to face headwinds at least until the end of the year, with higher costs from rising freight and raw material prices, a day after Snapchat’s parent company Snap Inc said the US economy had worsened faster than expected in April.

David Petrosinelli, senior trader at InspereX, said the economy will likely slow very slowly as the Federal Reserve raises interest rates to stave off inflation.

“It’s really all about a hard landing and the Fed being cornered with only demand-side tools to really help,” he said. “They really need to crush demand.”

MSCI’s global stock index lost 1.46%, while the entire European STOXX 600 index lost 1.14%.

On Wall Street, the Dow Jones Industrial Average fell 0.63%, the Nasdaq Composite 3.24% and the S&P 500 1.67% and headed back into the bear market.

Value shares fell 0.63%, or well below the 2.81% drop in growth stocks.

Snap shares fell 42.4%, dragging many social media and internet stocks down, while Abercrombie fell 30.8%.

In Europe, all major industries recorded broad declines, with luxury stocks and retailers leading as consumers’ disposable income contracted.

European Central Bank President Christine Lagarde said the ECB saw the deposit rate at zero or “slightly above” at the end of September, indicating an increase of at least 50 basis points from its current level as the bank prepares to fight inflation.

“The possibility of the ECB at least making a more aggressive move has created anxiety in global markets,” said Phil Shaw, chief economist at Investec in London.

“There were reports overnight that some hawks on the governing council thought yesterday’s statements ruled out a 50 basis point increase, but today’s statements left that on the table,” he said.

Germany’s 10-year Bund rate fell 9 basis points to 0.959%.

Benchmark 10-year Treasuries fell 10.3 basis points to 2.756%, while Treasury yields fell to a one-month low.

The dollar index fell 0.264%, while the euro rose 0.29% to $1,072.

Bipan Rai, Head of FX Strategy for North America at CIBC Capital Markets, said Lagarde’s comments in a blog post Monday and a volatility that drove the US currency to two-year highs strengthened the tactical weakness in the dollar.

“The broad macro ground still favors risk taking,” said Rai. “The dollar still has more room to move in the medium term.”


Markets took some relief from US President Joe Biden’s comment on Monday that he is considering easing tariffs on China, and Beijing’s continued stimulus promises.

Still, China’s zero-COVID-19 policy and quarantine practices have already caused significant economic damage.

JPMorgan cut its second-quarter Chinese gross domestic product forecast to 5.4% from the previous 1.5% drop after disappointing data in April. On an annual basis, its global forecast for the quarter is 0.6%, the weakest since the global financial crisis outside of 2020.

Oil prices have changed little as tight supply concerns offset concerns about a possible recession and China’s COVID-19 restrictions.

U.S. crude futures fell 52 cents to $109.77 a barrel, while Brent rose 14 cents to $113.56 a barrel.

Gold prices rose to a two-week high as the safe-haven metal’s appeal boosted by a weaker US dollar, lower Treasury yields and waning risk appetite in financial markets.

U.S. gold futures were up nearly 1% at $1,865.40 an ounce.

(Reporting by Herbert Lash in New York and Lawrence White in London; additional reporting by Wayne Cole in Sydney; editing by Simon Cameron-Moore, Jonathan Oatis and Tomasz Janowski)

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