Updated at 4:15 pm ET
Stocks finished sharply lower Thursday, while the dollar rebounded from its worst day in two and a half years, as investors continue to navigate extreme volatility in bond and currency markets heading into the final trading days of a difficult quarter for global stocks.
With the impact of yesterday's extraordinary intervention from the Bank of England fading, and investors still focused on safety over risk amid the broader market upheaval, the U.S. dollar index bounced 0.22% higher in overnight trading, pegging it at 112.854 against its global currency peers.
The index was off 0.40% to 112.15 at last check.
"U.S. stocks are weakening once again after hot inflation readings and another round of hawkish Fed speak," said Edward Moya, senior market analyst for the Americas with Oanda. "Risky assets don’t stand a chance of a meaningful rally if the economy continues to show resilience while inflation continues to be significantly above the Fed’s Funds rate."
U.S. Treasury bond yields were also on the rise, with benchmark 10-year notes adding around 8 basis points from yesterday's close -- which saw the biggest one day decline since 2011 -- to change hands at 3.83% during European hours.
The whipsaw in bond and currency markets reflects not only concern over the near-term pace of inflation in the world's biggest economies, but also the impact on growth that is expected from central bank efforts to tame it.
The European Central Bank, in fact, is signaling a 75 basis point rate hike for its next policy meeting in October, while the Bank of England is likely to follow-suit as the pound's historic slump adds to energy and food import costs and stokes inflation in the world's fifth largest economy.
In the U.S., the odds of a fourth consecutive jumbo rate hike from the Fed are still compelling, even as the Atlanta Fed's GDPNow forecasting tool suggests growth has slowed to just 0.3% over the current quarter.
Amazon (AMZN) - Get Free Report, in fact, may have added to near-term inflation concerns when it unveiled a $1 billion plan to boost the wages of warehouse and transportation workers heading into the holiday season, just days after Target (TGT) - Get Free Report said it would hire around 100,000 seasonal employees at salaries of between $16 and $24 per hour.
Weekly applications for unemployment benefits, in fact, fell by 16,000 to 193,000 over the period ending on September 24, setting up what could be a stronger-than-expected non-farm payroll report on October 7.
Still, the sluggish pace of U.S. growth, coupled with a pullback in discretionary spending and a slide in consumer confidence, is likely to clip earnings growth when the third quarter reporting season kicks off early next month with updates from the banking sector.
Collective S&P 500 earnings, which grew by around 8.3% over the three months ending in June, are likely to only rise 4.6% from last year to $465.9 billion over the third quarter, according to Refinitv forecasts. Stripping away the energy sector, and corporate earnings are likely to decline by 1.9%.
In the meantime, stocks in Europe were back in the red Thursday, with the region-wide Stoxx 600 falling 1.7% in mid-day Frankfurt trading following key reading for German inflation that showed harmonized consumer prices surging by a record 10.9% in September.
Britain's FTSE 100 down another 1.6% while the pound was edged higher to 1.0984 against the U.S. dollar.
On Wall Street, the S&P 500 fell 2.11% to a new low for the year, while the Dow Jones Industrial Average dropped 458 points, or 1.54%, to 29,225.. The tech-focused Nasdaq was down 2.84%.
Apple Inc. (AAPL) - Get Free Report shares fell nearly 5% after analysts at Bank of America lowered their rating and price target on the world's most-valuable tech company, citing fading consumer demand and a weak reception for the new iPhone 14.
CarMax (KMX) - Get Free Report shares plummeted 24.6% after the vehicle-buying website posted weaker-than-expected second quarter earnings amid a slump in overall sales that suggests weakening in the used car market.
Analysts expect the company to keep overall revenues largely flat to last year, at $12.27 billion, but report a near 21% drop in diluted earnings, to 92 cents per share, as surging labor, input and transportation costs pressure overall profit margins.