Global shares fall on fears of global economic slowdown

By Elizabeth Dilts Marshall

NEW YORK (Reuters) - Global shares sank to their lowest point in 18 months on Thursday as high inflation, rising interest rates and energy supply fears in Europe have investors worried about an economic slowdown.

Germany warned that Russia, which invaded Ukraine in February, was now using energy supplies as a "weapon" to put pressure on Europe's continent-wide STOXX 600 index, which was down 0.75%. MSCI's gauge of stocks across the globe was down 1.76%, as of 3:03 ET (1903 GMT).

That flagship global index is nearly 20% lower for the year.

In the United States, all three major stock indexes seesawed before settling into a steep sell-off, which put the S&P 500 within striking distance of the closing level that would confirm it entered a bear market. That same index reached its all-time high just five months ago on Jan. 3.

The Dow Jones Industrial Average fell 507.73 points, or 1.59%, the S&P 500 lost 61.42 points, or 1.56%, and the Nasdaq Composite dropped 180.99 points, or 1.59. [.N]

The prospect of the fastest hike in Fed rates in decades is driving up the U.S. dollar and taking the heaviest toll on riskier assets that shot up through two years of COVID-19 pandemic-era stimulus and low-rate lending.

The dollar climbed to a 20-year high on Thursday, and the dollar index last rose 0.759%, while the euro was down 1.31% to $1.0373. The Chinese yuan slid to a 19-month trough.

After swinging between negative and positive territory throughout the trading day, Brent crude futures settled 6 cents lower at $107.45 a barrel and U.S. crude oil futures settled 42 cents higher at $106.13 a barrel.

Nearly all the main volatility gauges were signaling danger. Bitcoin was caught in a fire-sale of risky crypto assets as it fell another 8% to $26,570, having been near $40,000 just a week ago and almost $70,000 last November.

"We have had big moves," UBS's UK Chief Investment Officer Caroline Simmons, said, also referring to bond markets and economic expectations. "And when the market falls it does tend to fall quite fast."

Tensions between Europe and Russia flared again Thursday when Finland said it would apply to join NATO "without delay." Sweden is expected to follow, which could bring about the very expansion of the Western military alliance that Vladimir Putin aimed to prevent with Russia's invasion of Ukraine.

The U.S. Labor Department said the producer price index for final demand rose 0.5% in April as the rising cost of energy products moderated. The PPI surged 1.6% in March.

The slowdown in monthly producer price gains followed a similar trend in consumer prices last month.

U.S. consumer prices rose 8.3% in April year-on-year, fractionally slower than the 8.5% pace of March, but still above economists' forecasts for 8.1%.

SELL IN MAY

The main pan-Asia Pacific indexes closed down 2.5% at a 22-month low overnight. Japan's Nikkei fell 1.8. Emerging market stocks lost 2.28%.

U.S. Treasury yields slid on Thursday. The yield on 10-year Treasury notes fell 4.3 basis points to 2.870% as the benchmark U.S. government bond pared losses after sinking to a morning low of 2.8173%.

Germany's 10-year yield, the benchmark for Europe, fell as much as 15 bps to 0.85%, its lowest in nearly two weeks.

Cryptocurrency markets are also melting down, with the collapse of the so-called stablecoin TerraUSD highlighting the turmoil as well as the selling in bitcoin and next-biggest-crypto, ether, which slumped 15%.nL3N2X337U]

Tether, currently the world's largest stablecoin by market cap with a value directly tied to the dollar broke below its so-called U.S. dollar "peg" on Thursday. The global sell-off has now wiped more than $1 trillion off crypto markets. Around 35% of that loss has come this week.

"The collapse of the peg in TerraUSD has had some nasty and predictable spillovers. We have seen broad liquidation in BTC, ETH and most ALT coins," said Richard Usher, head of OTC trading at BCB Group, referring to other cryptocurrencies.

Gold and other precious metals dropped on Thursday, with palladium shedding more than 8%, as investors flocked to the dollar.

Spot gold dropped 1.6% to $1,823.26 an ounce. U.S. gold futures fell 1.64% to $1,823.80 an ounce. [MET/L]

Benchmark copper on the London Metal Exchange (LME) was down 3.6% at $9,000 a ton in official trading after falling as low as $8,938. Prices are down 17% from a record high of $10,845 reached in March.