Shares Slide on Fresh Signs of Slowing Growth, Yields Fall

By Herbert Lash and Marc Jones

NEW YORK/LONDON (Reuters) – Global equity markets skidded further on Thursday as fresh signs of slowing growth led investors to sell stocks and move into safe-haven assets such as government debt and the Swiss franc, poised for its biggest one-day gain in more than six-years.

Supply chain woes continued to fuel inflation and growth concerns as Cisco Systems Inc warned of persistant component shortages, pushing its shares down 13% to help drive the S&P 500 closer to bear market territory.

Data showed factory output in the U.S. Mid-Atlantic region decelerated far more than expected in May with the business outlook for the six months ahead the weakest in more than 13 years, a regional Federal Reserve bank survey said.

On Wall Street, stocks traded mixed. The Dow Jones Industrial Average fell 0.62%, the S&P 500 lost 0.04% and the Nasdaq Composite added 0.91%.

Traders are looking for a catalyst that will turn the market around as near-term bottom approaches, said Rick Meckler, president of hedge fund LibertyView Capital Management LLC.

“There’s probably still enough fear among investors to see a few more downdrafts,” he sad. “But I think we’re starting to hit a point where prices seem more in line with economic conditions. We may shift from overwhelming pessimism to starting to look for hopefully some turns in the problems that we’re facing.”

Goldman Sachs now estimates a 35% probability of a U.S. recession in the next two years, while Morgan Stanley’s sees a 25% chance of one in the next 12 months.

In yet another sign of rising prices, U.S. spot power and natural gas prices soared to their highest in over a year in some U.S. regions as Americans cranked up air conditioners to escape an early spring heatwave.

MSCI’s gauge of stocks across the globe shed 0.28% and the pan-European STOXX 600 index closed down a preliminary 1.46%.

Asia-Pacific shares ex-Japan snapped four days of gains to wilt 1.8%, dragged down by a 1.65% loss for Australia’s resource-heavy index, a 2.5% drop in Hong Kong. Tokyo’s Nikkei shed 1.9%.

Germany’s 10-year bond yield fell below 1% and U.S. Treasury yields fell as continued softness in U.S. economic data stirred growth concerns that the Federal Reserve’s aggressive monetary tightening may exacerbate.

The yield on 10-year Treasury notes fell 5.6 basis points to 2.828%, after earlier hitting a three-week low of 2.772%.

The dollar fell across the board to extend its pullback from a two-decade high, as most major currencies battered by the greenback’s advance this year drew some buyers.

The dollar index fell 0.925%, with the euro up 1.08% to $1.0579. The Japanese yen strengthened 0.47% to 127.64 per dollar.

(Graphic- Worst start to a year for world stocks: https://fingfx.thomsonreuters.com/gfx/mkt/byvrjdrjdve/Pasted%20image%201652952015101.png)

The focus remained on what central banks will now do as they walk a tightrope of trying to regain control of inflation, which is now at 40-year highs in some countries, without causing painful recessions.

“We will have to discuss what we can do together in our respective areas of responsibility to avoid stagflation scenarios,” German finance minister Christian Lindner said as he arrived for a two-day meeting of top central bankers near Bonn.

Oil prices rebounded from earlier losses as Chinese officials planned to ease restrictions in Shanghai, which could further tighten global energy supply, and as the dollar retreated from recent gains.

U.S. crude recently rose 0.39% to $110.02 per barrel and Brent was at $110.30, up 1.09% on the day.

(Graphic-Inflation surge driven by food and energy prices:https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwelnevo/Pasted%20image%201652968605633.png)

(Reporting by Herbert Lash, additional reporting by Marc Jones in London, Francesco Canepa in Koenigswinter, Germany, Stella Qiu in Beijing and Alun John in Hong Kong; Editing by Kirsten Donovan and Bernadette Baum)