Global stock market plunges following release of U.S. retail sales data

The global stock market plunged on Wednesday after data showed higher-than-projected retail sales in the U.S in October.

Three major indices on Wall Street closed lower on Wednesday. The Dow Jones finished at 33,553.83, losing 39.09 points or 0.12 percent. Meanwhile, the S&P 500 ended the trading day at 3,958.79, falling by 32.94 points or 0.83 percent.

The tech-focused Nasdaq Composite suffered the most significant, losing 174.75 points or 1.54 percent, ending the day at 11,183.66. For S&P 500 and Nasdaq, Wednesday marked their third consecutive loss.

The Europe stock market also suffered. The STOXX 600 broke its four-day gaining streak by falling one percent. A vital contributor to the drop was the auto sector.

Shares of Mercedes Benz fell by 6.2 percent after the auto company decided to lower the prices of its China electric vehicles due to poor sales.

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The MSCI world index, which tracked around 3,000 stocks in 48 developed and emerging countries, reported a 0.82 percent drop on Wednesday. Last Tuesday, the index set a two-month high.

The Asian stock market reported a drop as well. Hang Seng Index in Hong Kong tumbled 2.1 percent, with the tech sector contributing the most. Japan’s Nikkei also fell 0.3 percent, while South Korea’s Kospi dropped by 1.1 percent. Declines in both markets occurred due to heavyweight chip companies.

Recent retail data showed sales had risen 1.3 percent in October, against the initial one percent forecast. The data suggested that consumers continued to spend money amid high inflation.

Raymond James chief economist Eugenio Aleman explained the reasoning behind this spending behavior.

“The fact that they were limited in their consumption alternatives before, for almost three years, is having a big impact on consumers’ decisions to continue to spend,” he said.

The retail sales number also affected the U.S. dollar index. The greenback momentarily cut its losses against other major currencies but eventually weakened against the euro.

On Wednesday, the euro traded at $1.0391 or gaining 0.42 percent. The yen, on the other hand, weakened by 0.14 percent against the U.S. currency, trading at 139.49 per dollar.

Data showed that bond yields further went down after the release of retail sales data. The 10-year notes dropped by 10.4 basis points to 3.695 percent.

Analysts noted that the discrepancy between two-year and 10-year yields had deepened to -67.8 basis points, signaling a recession. This yield curve also puts U.S. economic growth at risk.

Economic outlook

Despite the consumer price index (CPI) indicating that the economy slowed down in October, the retail sales provided conflicting data. Analysts said the situation might “force” the Federal Reserve to maintain a hawkish monetary policy.

Goldman Sachs projected that the Fed would add another 25 basis points hike in 2023. It also predicted that the peak Fed’s target benchmark rate would range from 5.0 to 5.25 percent, against the current prediction of 4.92 percent.

According to Fed governor Christopher Waller, inflation had increased wage pressures in the coming months, which could make lowering price increases more challenging.

Previously, Waller also said that the Fed did not plan to soften its battle against inflation, stressing that its inflation rate target is two percent.