Australia

Australian shares are set to tumble after Wall Street suffered the steepest selloff in almost two years as weak results at major US retailers underscored how inflation is squeezing corporate profits amid signs growth is decelerating.

ASX futures were down 126 points or 1.7% at 7047 as of 8.00am on Thursday, pointing to a sharp decline that could reverse Wednesday’s gains.

The Dow Jones Industrial Average closed down 3.6%, its lowest closing level since March 2021. The S&P 500 dropped 4% in a broad-based dive. The tech-focused Nasdaq Composite slid 4.7%, weighed by declines at tech giants Apple, Amazon and Nvidia in excess of 5%. The Dow and S&P recorded their worst percentage declines since June 11, 2020. The moves marked a U-turn from a day earlier, when technology shares led a rebound in markets.

Major US retailers led declines after reporting profits were hurt by rising costs, sluggish sales and supply-chain disruptions. Shares of Target sank 25%, or $53.67, to $161.61 after the company posted quarterly earnings that missed analysts' expectations, its worst one-day performance since Black Monday in 1987. Shares of Dollar Tree, Dollar General and Costco Wholesale recorded their largest single-day percentage declines in years -- in Costco's case, since 2003.

"Inflation is hitting every aspect of an earnings report, whether it be the transportation side or supply-chain disruption," said Nick Giacoumakis, president and founder of NEIRG Wealth Management. "Customers are no longer buying the more expensive items they would typically buy. All this trickles through to an earnings report."

Locally, the S&P/ASX 200 closed 1.0% higher at 7182.7, securing a fourth consecutive rise amid gains by mining and tech stocks.

The benchmark index built on positive momentum from the US session, jumping ahead at the open and keeping hold of most of its gains.

The materials sector led gains as iron ore miners Fortescue Metals, Rio Tinto and BHP added between 2.0% and 3.2%.

Billionaire mining magnate Andrew Forrest will take the reins of the company he founded almost two decades ago after an extensive global search for a new leader failed to yield a better alternative.

South32 jumped 5.15% as Macquarie analysts expressed confidence that the diversified miner could allocate more cash to its buyback program.

WiseTech, Block, Life360 and Megaport gained between 3.1% and 4.1% as tech shares continued to rally from recent heavy selling.

The big banks were mostly down, with NAB falling 0.6% to $31.28 and CBA down 0.3% to $104.80. Westpac fell two cents to $24.44 while ANZ rose 0.9% to $25.84.

In commodity markets, Brent crude oil fell 2.5% to US$109.11 a barrel. Iron ore declined 3% to US$124.30. Gold slipped $1.30 to US$1814.60.

In local bond markets the yield on Australian 2 Year government bonds edged up to 2.57% while the 10 Year increased to 3.45%. Overseas, bonds rallied as investors pivoted to safety amid the equity selloff. The yield on US Treasury 2 Years declined to 2.67%, and the 10 Year slipped to 2.88%.

The Australian dollar edged back below 70 cents overnight, trading at 69.50 US cents as of 7.00am on Thursday, down from the previous close of 70.26 US cents. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies rose to 96.18.

Asia

China stocks ended the session mixed as the market continued this week's broadly muted trading. The benchmark Shanghai Composite Index fell 0.2% to settle at 3085.98, while the Shenzhen Composite Index eked out a 0.1% gain to end at 1941.54. The tech-heavy ChiNext Price Index lost 0.2% to 2365.38. Auto-related companies such as car makers and after-sales services providers were among the market's top performers, as officials continued to signal more supportive policy measures for car purchases, especially in rural areas. But that momentum was offset by weakness in restaurant and hotel operators, as the sector remains under pressure amid the resurgence of Covid-19 in China.

Hong Kong's Hang Seng Index closed 0.2% higher at 20644.28. Gainers included Techtronic Industries, which closed 5.8% higher, while Xinyi Solar rose 3.9%. Decliners included Wuxi Biologics, which lost 2.5%. Investors are likely to be focusing on quarterly earnings due later in the week, KGI Securities analyst Chua Hit Tong said in a note. Investor sentiment may be improving thanks to Chinese Vice Premier Liu He's expression of support for the technology sector's development and Shanghai's plans to gradually ease its lockdown, he added.

Japanese stocks ended higher, led by gains in tech and auto stock amid signs of US economic resilience and continued hopes for easing Covid-19 lockdowns in China. Fujitsu Ltd. gained 4.4% and Nissan Motor advanced 3.7%. Renesas Electronics climbed 3.7% after news of its Y90 billion capex plan to boost the production of power semiconductors for electric vehicles. The Nikkei Stock Average rose 0.9% to 26911.20. Investors are focused on the movements of the yen, crude oil as well as updates on the lockdowns in China.

Europe

European shares closed lower on Wednesday after a downbeat open on Wall Street as economic growth jitters rose. The pan-European Stoxx Europe 600, French CAC 40 and German DAX were more than 1% adrift as investors fret about inflation and potential recession in parts of the global economy.

"Growth fears are back it seems, driving equities and oil prices lower this afternoon," says IG analyst Chris Beauchamp. "That stocks can't even manage a decent rebound after their heavy losses should tell investors that we are not in the bull market of 2021 any more."

London’s FTSE 100 closed down 1.1% on Wednesday after a loss of momentum following comments from Federal Reserve chairman Jerome Powell that the central bank is determined to regain the initiative when it comes to reining in inflation. A record high print for UK inflation hasn't helped, says Michael Hewson, chief market analyst at CMC Markets UK.

Retailers are suffering the worst effects of the 9% inflation print, with Ocado, JD Sports, Tesco and B&M European Retail all slipping back, Hewson says. On the flip side, Rolls-Royce shares ended the day as the biggest riser, closing up 4.4%. Having slipped to 18-month lows earlier in the month, Rolls-Royce has climbed back to its highest levels this month.

North America

US stocks fell sharply, with two of the major indexes suffering their worst day since 2020, as the latest set of disappointing earnings from large retailers raised investors' fears of a recession.

The Dow Jones Industrial Average closed Wednesday down 3.6%, its lowest closing level since March 2021. The S&P 500 dropped 4% in a broad-based fall. while the tech-focused Nasdaq Composite slid 4.7%, weighed by declines at tech giants Apple, Amazon and Nvidia in excess of 5%. The Dow and S&P recorded their worst percentage declines since June 11, 2020. The moves marked a U-turn from a day earlier, when technology shares led a rebound in markets.

Major retailers said their profits were hurt by rising costs, sluggish sales and supply-chain disruptions. Shares of Target sank 25%, or $53.67, to $161.61 after the company posted quarterly earnings that missed analysts' expectations, its worst one-day performance since Black Monday in 1987. Shares of Dollar Tree, Dollar General and Costco Wholesale recorded their largest single-day percentage declines in years -- in Costco's case, since 2003.

The results are prompting Wall Street to wrestle anew with the idea that the global economy could be headed for a recession. Though that debate is far from settled, it has rattled stocks and other risky assets throughout the year, with the latest data illustrating the degree to which inflation has hit US consumers.

"Inflation is hitting every aspect of an earnings report, whether it be the transportation side or supply-chain disruption," said Nick Giacoumakis, president and founder of NEIRG Wealth Management. "Customers are no longer buying the more expensive items they would typically buy. All this trickles through to an earnings report."

Brent crude, the international benchmark for oil, fell $2.82, or 2.5%, to $109.11 a barrel, another indicator of investors' worries about economic growth. Oil prices have been highly reactive in recent months to both Russia's war against Ukraine, which could disrupt supplies, and lockdowns in Chinese cities that sap demand. Shanghai's government has begun preparing the city for reopening.

At the forefront of investors' minds is decades-high inflation in the US, how much policy makers are willing to do to subdue it and what changes in monetary policy mean for economic growth. Federal Reserve Chairman Jerome Powell said Tuesday that the central bank's resolve in combating inflation shouldn't be questioned, even if the steps required push up unemployment.

Walmart shares fell 6.8%, or $8.92, to $122.43, extending losses from Tuesday after the retailer reported that it is getting squeezed by higher food prices and other rising costs. Lowe's fell 5.3%, or $10.21, to $183.82 after the home-improvement retailer posted a drop in first-quarter sales Wednesday.

"We're seeing a continued shift in the composition of consumption, moving away from goods and back toward services," said Garrett Melson, a portfolio strategist at Natixis Investment Managers. "Naturally, that's going to weigh on these goods retailers."

Consumer discretionary and consumer staples were the worst-performing sectors in the S&P 500 Wednesday. Both recorded their largest single-day percentage losses since March 2020.

The war in Ukraine and China's zero-Covid strategy have also shaken up markets. Declines have been widespread. Bonds, typically a haven, have been falling alongside stocks.

"Our expectation is that growth will start to slow down over the next few months," said Salman Ahmed, global head of macro at Fidelity International, adding that he anticipates that the Fed's actions will help curb inflation. "Then the next step for the Fed will be to focus on the growth shock."

The mix of concerns hitting markets has led Mr. Ahmed to adopt a more cautious investment approach in recent weeks, he said.

Investors are also monitoring whether Russia's war against Ukraine could further bolster geopolitical tension. Finland and Sweden formally applied for NATO membership on Wednesday, a move that, if approved, would fundamentally transform the security landscape of Northern Europe.

The yield on the benchmark 10-year Treasury note declined to 2.884% from 2.969% Tuesday. Yields and prices move inversely.