Stocks and bonds under pressure after dismal UK inflation data

Stocks and bonds came under pressure on Wednesday after disappointing results from US retailer Target weighed on market sentiment already clouded by worse-than-expected UK inflation data.

Wall Street’s S&P 500 stock index was down 1.1% at midday in New York, with travel agencies among the biggest falls. Cruise shares Carnival, Norwegian Cruise Line Holdings and Royal Caribbean Cruises all fell more than 6%.

Target shares fell nearly 5% after the US retailer missed its earnings expectations for the three months ending July 30, as its chief executive spoke of a “very difficult environment”. The group’s figures were released just a day after income reports retailer Walmart and home improvement chain Home Depot indicated some resilience in consumer spending despite inflationary pressures affecting customers.

The tech-heavy Nasdaq Composite gauge lost 1.7% on Wednesday.

The moves came as investors assessed a fresh slew of economic data, starting with stronger-than-expected inflation figures for the UK. The country’s consumer price index registered a Year-over-year increase of 10.1% for July, higher than June’s figure of 9.4% and above economists’ consensus forecast of a 9.8% rise.

The British figures triggered a rout of the country’s short-term debtwhich is sensitive to changes in interest rate expectations, as investors raised their estimates of the level to which the Bank of England would raise borrowing costs to curb rapid price growth.

The two-year gilt yield jumped 0.3 percentage points to 2.45%, its highest since the 2008 global financial crisis. The 10-year gilt yield rose 0.19 percentage points to 2.32%. Bond yields rise when their prices fall.

This selloff ricocheted through other countries’ debt markets, with the yield on the two-year German Bund rising 0.17 percentage points to 0.75%. The US equivalent yield also jumped, adding 0.1 percentage point to 3.35%. The yield on the 10-year US Treasury note, an indicator of borrowing costs around the world, rose 0.09 percentage points to 2.92%.

Low summer trading volumes exacerbated gilt moves, said Lyn Graham-Taylor, rates strategist at Rabobank. “The gilts sold more than I expected given the news. The magnitude of this movement dragged Bunds and Treasuries with it.

He said bond markets could sell further, adding: “Central banks are less likely to blink at a declining growth outlook than the market expects.”

The grim UK inflation figures came just a week after US data signaled the rate of consumer price growth may be stabilizing in the world’s biggest economy.

Separate figures released on Wednesday showed U.S. retail sales were flat month-over-month in July, due to lower spending at gas stations as oil prices fell.

Elsewhere in the stock markets, the European regional Stoxx 600 closed down 0.9%, while the German Dax fell 2%. In Asia, Japan’s Topix index closed up 1.3% while Hong Kong’s Hang Seng rose 0.5%.

Later in the session, investors will carefully scrutinize the minutes of the US Federal Reserve’s latest monetary policy meeting for additional clues about the central bank’s strategy to fight inflation.

“Today not all eyes will be on the UK,” said Florian Ielpo, head of macro at Lombard Odier. “They’re going to be on Fed minutes. If anyone is ahead in the fight against inflation, it’s the Fed.

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