Connect with us

Economy

Stocks tumble, Wall Street shudders after inflation worsens

Published

5 minute read

NEW YORK (AP) — Wall Street shuddered Friday, and stocks tumbled after getting hammered by data showing inflation is getting worse, not better, as investors had been hoping.

The S&P 500 was 2% lower in the first half hour of trading, while moves in the bond market indicated investors’ concerns are building about a possible recession. The Dow Jones Industrial Average was down 611 points, or 1.9%, at 31,661 as of 9:55 a.m. Eastern time, and the Nasdaq composite was 2.4% lower.

Wall Street came into Friday hoping a highly anticipated report on the consumer price index would show the worst inflation in generations slowed a touch last month. Instead, the U.S. government said inflation accelerated to 8.6% in May from 8.3% a month before.

The Federal Reserve has already begun raising interest rates and making other moves in order to slow the economy, in hopes of forcing down inflation. Wall Street took Friday’s reading to mean the Fed’s foot will remain firmly on the brakes for the economy, dashing hopes that it may take a pause later this year.

The growing expectation in markets is for the Fed to raise its key short-term interest rate by half a percentage point at each of its next three meetings, beginning next week. That third one in September had been up for debate among investors in recent weeks. The Fed has raised rates by that degree only once since 2000, last month.

“Inflation is hot, hot, hot,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “Basically, everything was up. No relief is in sight, but a lot can change between now and September. Nobody knows what the Fed will do in a few months including the Fed.”

A stock’s price rises and falls on two things, essentially: how much profit a company produces and how much an investor is willing to pay for it. The Fed’s moves on interest rates heavily influence that second part.

Since early in the pandemic, record-low interest rates engineered by the Fed and other central banks encouraged investors to pay higher prices for investments. Now “easy mode” is abruptly and forcefully getting switched off.

Not only that, too-aggressive rate hikes by the Fed could ultimately force the economy into a recession. Higher interest rates make borrowing more expensive, which drags on spending and investments by households and companies.

The two-year Treasury yield zoomed to 2.94% following the inflation report, after touching its highest level since 2018. It’s up from 2.83% late Thursday.

The 10-year yield was also up, but more modestly than the two-year yield, which is more influenced by expectations for Fed movements. The 10-year yield climbed to 3.10% from 3.04%.

The narrowing gap between those two yields is a signal that investors in the bond market are more concerned about economic growth. Usually, the gap is wide, with 10-year yields higher because they require investors lock away their dollars for longer.

If the two-year yield rises above the 10-year yield, some investors see that as a red flag warning of a recession hitting in a year or two.

“A higher-than-expected CPI number seals the deal on investors’ fears,” Mike Loewengart, managing director at E-Trade from Morgan Stanley, wrote in a research note. “And though consumers may be experiencing high prices in their day-to-day, especially at the pump, it’s disappointing to see that we don’t have a lid on inflation yet, despite the Fed’s efforts.”

The S&P 500 is on track to close out its ninth losing week in the last 10.

Stocks also tumbled in Europe for a second day after the European Central Bank said it would soon raise interest rates for the first time in more than a decade to combat inflation.

Germany’s DAX lost 2.4%, France’s CAC fell 2.4% and the FTSE 100 in London dropped 2.1%.

In Asian trading, stocks in Shanghai rose 1.4% following news that inflation remained subdued at 2.1% in May.

With inflation below the government’s 3% target, Chinese leaders have more leeway to offer policy supports for their economy when anti-COVID restrictions may be slowing businesses.

Tokyo’s Nikkei 225 index lost 1.5%, while the Kospi in Seoul shed 1.1%.

___

AP Business Writer Elaine Kurtenbach contributed.

Stan Choe, The Associated Press

Storytelling is in our DNA. We provide credible, compelling multimedia storytelling and services in English and French to help captivate your digital, broadcast and print audiences. As Canada’s national news agency for 100 years, we give Canadians an unbiased news source, driven by truth, accuracy and timeliness.

Follow Author

Economy

Luxury goods tax on super-rich could hit electric vehicles: expert

Published on

By Marie Woolf in Ottawa

A new tax on yachts, luxury cars and private aircraft designed to hit the super-rich could also cover vehicles meant to help the environment, a tax expert warns.

The luxury goods tax, which will come into force on Sept. 1, will cover cars and SUVs, as well as private planes and helicopters, worth more than $100,000.

The federal tax will also cover yachts and boats — including motorboats — worth more than $250,000.

But senior tax lawyer Héléna Gagné says the new tax could also hit some electric and hybrid vehicles, including Tesla and BMW models, which cost more than $100,000.

The federal government has been encouraging Canadians to invest in clean technology and zero-emission vehicles, which can carry a higher price tag than cars that run on fossil fuels.

Gagné said the thresholds for the tax could also affect people who would not be regarded as wealthy, but have saved up to buy a private plane for a hobby.

“It seems to be assumed that it is only the wealthiest who will be impacted by the luxury tax but it is not necessarily the case,” said Gagné, a partner at Osler, Hoskin & Harcourt LLP. “It can also impact indirectly taxpayers who may not consider themselves as being among the wealthiest but who may decide to purchase an electric vehicle with a retail sales price that happens to be over the $100,000 threshold.”

Adrienne Vaupshas, a spokeswoman for Finance Minister Chrystia Freeland, said the measures, originally proposed in the 2021 budget, are not designed to hit the middle class.

She said the threshold for the tax for boats was deliberately set at $250,000 so it would cover superyachts and not middle-class families buying boats.

Vaupshas said it was “only right and fair that the very wealthiest are asked to pay their fair share.”

“The government was re-elected on a platform that included a commitment to bring forward a luxury tax on yachts, private jets, and luxury cars and implementing this measure is a priority,” she said.

The tax was originally proposed in the 2021 budget. It will cover luxury cars, planes, and boats bought for personal use and leisure. Commercial vehicles, including small planes selling seats, and emergency vehicles are among the classes of vehicle exempt from the new tax.

The tax amounts to either 10 per cent of the taxable amount of the item or 20 per cent of the amount over the price threshold — whichever is less.

The NDP has been putting pressure on the federal government to do more to tax the super-rich. Measures to increase taxes on the wealthiest people in Canada, however, were not included in the Liberal-NDP confidence and supply pact.

NDP critic for tax fairness and inequality, Niki Ashton, said at a news conference last month that she wants the federal government to close loopholes she says are being used by the super-rich and corporations to avoid paying billions in taxes.

This report by The Canadian Press was first published Aug. 11, 2022.

Continue Reading

Economy

Plastics producers ask court to quash planned federal ban on single-use straws, cups

Published on

OTTAWA — More than two dozen plastic makers are asking the Federal Court to put an end to Ottawa’s plan to ban several single-use plastic items including straws, cutlery and takeout containers.

It is the second lawsuit filed in the court by a coalition of plastics makers calling themselves the Responsible Plastic Use Coalition.

The first suit filed in 2021 seeks to overturn the government’s decision to designate plastics as “toxic” under the Canadian Environmental Protection Act.

Environment Minister Steven Guilbeault used that designation to publish regulations that will ban the sale, import and production of six plastic items.

The second lawsuit filed in mid-July asks the Federal Court to quash the ban, prohibit the government from using the act to regulate single-use plastics and prevent the ban from being implemented in the meantime.

Guilbeault says he is confident the government’s regulations will be upheld and would rather work with the industry to improve recycling than battle the sector in court.

This report by The Canadian Press was first published Aug. 10, 2022.

The Canadian Press

Continue Reading

Trending

X