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Inflation Worries May Lead To Continued Weakness On Wall Street

The major U.S. index futures are currently pointing to a lower open on Thursday, with stocks likely to extend the recent move to the downside.

Worries about the Federal Reserve aggressively raising interest rates in an effort to combat elevated inflation may continue to weigh on the markets.

Traders have recently expressed concerns more aggressive moves by the Fed and other central banks could lead to a period of stagflation or an outright recession.

Potentially adding to the worries, the Labor Department released a report this morning showing the annual rate of producer price growth slowed by less than expected in the month of April.

The report showed the annual rate of growth in producer prices slowed to 11.0 percent in April from a record high 11.5 percent in March, although economists had expected a bigger slowdown to 10.7 percent.

Core producer prices, which exclude prices for food, energy and trade services, were up by 6.9 percent compared to a year ago, reflecting a modest slowdown from the 7.1 percent spike seen in the previous month.

A separate report released by the Labor Department unexpectedly showed a slight increase in first-time claims for U.S. unemployment benefits in the week ended May 7th.

Stocks saw considerable volatility in morning trading on Wednesday before once again coming under substantial selling pressure in the afternoon. With the steep drop on the day, the major averages all ended the session at their lowest closing levels in over a year.

The major averages saw further downside going into the close, ending the day near their lows of the session. The Dow slumped 326.63 points or 1 percent to 31,834.11, the Nasdaq plunged 373.44 points or 3.2 percent to 11,364.24 and the S&P 500 tumbled 65.87 points or 1.7 percent to 3,935.18.

The weakness that emerged on Wall Street came as traders digested a highly anticipated Labor Department report showing the annual rate of consumer price growth slowed by less than expected.

While the report showed the annual rate of consumer price growth slowed to 8.3 percent in April from a 40-year high of 8.5 percent in March, economists had expected the pace of growth to slow to 8.1 percent.

The annual rate of growth in core consumer prices also slowed to 6.2 percent in April from 6.5 percent in March, although the rate was expected to decelerate to 6.0 percent.

On a monthly basis, the Labor Department said its consumer price index rose by 0.3 percent in April after surging by 1.2 percent in March. Economists had expected prices to edge up by 0.2 percent.

Core consumer prices, which exclude food and energy prices, climbed by 0.6 percent in April after rising by 0.3 percent in March. Core prices were expected to increase by 0.4 percent.

The data added to recent concerns the Federal Reserve will raise interest rates more aggressively in an effort to bring inflation down at a faster rate.

"Overall, the April data will probably strengthen the Fed's resolve to continue hiking rates by 50bp at the next couple of meetings - and could lead to renewed speculation about a 75bp hike or an inter-meeting move," Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "But with goods shortages tentatively easing and signs that wage growth is set to cool, we still think a more pronounced drop back in inflation will allow officials to slow the pace of tightening in the second half of the year."

Computer hardware stocks moved sharply lower over the course of the session, dragging the NYSE Arca Computer Hardware Index down by 3.8 percent to its lowest closing level in well over a year.

Substantial weakness also emerged among housing stocks, as reflected by the 3.4 percent nosedive by the Philadelphia Housing Sector Index. The index also ended the session at a more than one-year closing low.

Semiconductor stocks also showed a significant move to the downside on the day, resulting in a 3 percent plunge by the Philadelphia Semiconductor Index.

Airline, retail, banking and networking stocks also came under considerable pressure as the day progressed, while notable strength remained visible among tobacco and oil stocks.

Commodity, Currency Markets

Crude oil futures are slumping $1.41 to $104.30 a barrel after surging $5.95 to $105.71 a barrel on Wednesday. Meanwhile, after climbing $12.70 to $1,853.70 an ounce in the previous session, gold futures are falling $7.60 to $1,846.10 an ounce.

On the currency front, the U.S. dollar is trading at 128.10 yen versus the 129.97 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0423 compared to yesterday's $1.0513.

Asia

Asian stocks plummeted on Thursday and the dollar held near a two-decade high after the latest U.S. inflation data strengthened the Fed's resolve to continue hiking rates by 50 basis points for at least three meetings.

U.S. inflation edged down to an 8.3 percent annual rate in April but remained close to the fastest pace in four decades, overnight data showed.

Chinese shares fluctuated before ending slightly lower and the yuan slipped to a 19-month trough amid tightening Covid rules and extended lockdowns.

The benchmark Shanghai Composite Index edged down 0.1 percent to 3,054.99. Hong Kong's Hang Seng Index ended 2.2 percent lower at 19,380.34. Chinese developer Sunac China Holdings failed to meet its final deadline for a U.S.-currency bond coupon payment.

The Hong Kong Monetary Authority intervened in the currency market after the Hong Kong dollar fell to the weak end of its 7.75-to-7.85 per greenback.

Japan's Nikkei 225 Index tumbled 1.8 percent to 25,748.72, marking its lowest level in nearly two months on worries about high inflation and tightening monetary policies.

Tech stocks tracked their U.S. peers lower, with SoftBank Group shares falling more than 8 percent. Tokyo Electron, KDDI and Advantest lost 2-4 percent. Mitsubishi Motor surged 6.2 percent and Olympus soared 11.2 percent on strong earnings.

Australian markets hit a five-month low, hit by losses in the technology sector. The benchmark S&P/ASX 200 Index dropped 1.8 percent to finish at 6,941.

Block Inc. shares plunged 17.6 percent and Xero nosedived 11.6 percent. Mining and energy stocks also fell broadly as commodity prices weakened on growth and inflation worries.

Meanwhile, lender Commonwealth Bank of Australia rose 0.6 percent after its third quarter cash earnings beat estimates.

New Zealand's benchmark S&P/NZX 50 Index dipped half a percent to 11,177.36 after data showed inflation expectations in the country rose further in the second quarter, adding to signs the central bank will keep raising interest rates.

Seoul stocks hit an 18-month low and the won extended its retreat on inflation woes. The Kospi fell 1.6 percent to 2,550.08, extending losses for the eighth day and marking the lowest level since Nov. 19, 2020. Large-cap stock such as Samsung Electronics, SK Hynix and Hyundai Motor all fell over 1 percent.

Europe

European stocks have pulled back sharply on Thursday after the latest U.S. inflation data suggested Fed officials are likely to stick with their approach of raising rates by a half-point at each of their next two-three meetings to tame high-flying inflation.

Meanwhile, U.K. GDP advanced 0.8 percent sequentially in the first quarter, slower than the 1.3 percent increase in the fourth quarter and the economists' forecast of 1.0 percent, data released by the Office for National Statistics showed earlier today. Nonetheless, monthly GDP was now 1.2 percent above its pre-coronavirus pandemic level.

While the French CAC 40 Index has plunged by 2.6 percent, the German DAX Index and the U.K.'s FTSE 100 Index are down by 2.2 percent and 2.1 percent, respectively.

Miners have led losses in the region, with Anglo American, Antofagasta and Glencore plunging on growth concerns.

Bouygues has also declined. The French telecommunications, media and construction company reported a net loss of 131 million euros for its first quarter, compared to last year's profit of 21 million euros.

Commerzbank has also fallen despite the German lender reporting double-digit percentage growth in revenues in the first quarter of 2022.

Merck KGaA has also slumped. The chemical company predicts higher profit and sales for 2022 after earnings and revenue increased in the first quarter.

Conglomerate Siemens has also shown a substantial move to the downside after announcing it is leaving Russia due to the war in Ukraine.

Meanwhile, Britain's biggest broadband and mobile operator BT has risen after announcing that it has finalized its much-awaited deal with U.S. media group Warner Bros Discovery to form a joint venture for its sport business.

Franco-Italian chipmaker STMicroelectronics has also rallied after it outlined a path to achieve more than $20 billion in annual sales by 2027 at the latest.

Residential property business Grainger has edged higher after it reported strong profit and rental income growth for the first half of fiscal 2022.

U.S. Economic Reports

Producer prices in the U.S. increased in line with economist estimates in the month of April, according to a report released by the Labor Department on Thursday.

The Labor Department said its producer price index for final demand rose by 0.5 percent in April after surging by an upwardly revised 1.6 percent in March.

Economists had expected producer prices to advance by 0.5 percent compared to the 1.4 percent jump originally reported for the previous month.

Excluding prices for food, energy and trade services, core producer prices climbed by 0.6 percent in April following a 0.9 percent increase in March.

The report showed the annual rate of growth in producer prices slowed to 11.0 percent in April from a record high 11.5 percent in March, although economists had expected a bigger slowdown to 10.7 percent.

Core producer prices in April were up by 6.9 percent compared to a year ago, reflecting a modest slowdown from the 7.1 percent spike seen in March.

A separate report released by the Labor Department unexpectedly showed a slight increase in first-time claims for U.S. unemployment benefits in the week ended May 7th.

The Labor Department said initial jobless claims crept up to 203,000, an increase of 1,000 from the previous week's revised level of 202,000.

The uptick surprised economists, who had expected jobless claims to dip to 195,000 from the 200,000 originally reported for the previous week.

At 11 am ET, the Treasury Department is scheduled to announce the details of this month's auction of twenty-year bonds.

The Treasury is also due to announce the results of this month's auction of $22 billion worth of thirty-year bonds at 1 pm ET.

At 4 pm ET, San Francisco Federal Reserve President Mary Daly is scheduled to participate in a fireside chat moderated by former San Francisco Fed Seattle Branch Director Sophie Minich.

Stocks In Focus

Shares of Beyond Meat (BYND) are plummeting in pre-market trading after the plant-based meat maker reported a wider than expected first quarter loss on revenues that missed analyst estimates.

Auto giants Ford (F) and General Motors (GM) may also move to the downside after Wells Fargo downgraded its rating on both companies' stocks to Underweight from Overweight.

On the other hand, shares of Bumble (BMBL) are likely to see initial strength after the dating service operator reported first quarter results that beat expectations on both the top and bottom lines.

Theme park operator Six Flags (SIX) may also move to the upside after reporting a narrower than expected first quarter loss on revenues that exceeded analyst estimates.

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