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By Jamie McGeever

ORLANDO, Fla., May 12 (Reuters) – It’s almost a cliche that retail investors are always late to an investment boom – but the outsize exposure of household savers to frothier elements of frenzied markets since lockdown means they are feeling the hit from this bust more than most.

A string of surveys and investment flow snapshots show that retail investors have significantly ramped up holdings of tech stocks and cryptocurrencies, which are now joined at the hip more than ever.

Having marched to the top of the hill first on the way up, they are the markets tumbling fastest on the way down.

According to Vanda Research, nine of the top 10 stocks in a weighted average retail investor portfolio are U.S-listed tech, and account for more than 50% of the entire portfolio. The portfolio is deeply out of the money, down 31% since its peak in December.

The wilder world of crypto may not be retail investors’ natural habitat, but they are exploring. A Charles Schwab UK survey in March showed that 57% of new investors hold crypto assets, and a Morgan Stanley survey published this week showed that 31% of retail investors in the European Union held cryptocurrency.

Loading up on tech and crypto was probably a better bet when the Federal Reserve and other central banks were pumping the world full of liquidity, interest rates were near zero, and governments were mailing out stimulus checks.

But that is not the case any more. The global liquidity drain is underway, the Nasdaq is down 30% from its November peak, and bitcoin is down 60%.

Eben Burr, president of Toews Asset Management, says retail investors want to buy yesterday, but the closest they can get to that is buying the thing that did well yesterday. And that’s illogical and irrational.

“There is more pain ahead in the short term, 100%. If the market decline continues, it will become too painful, and retail investors will bail,” said Eben Burr, president of Toews Asset Management. “Everyone has a breaking point.”

“CAN’T LOSE”?

Institutional investors now control the lion’s share of the bitcoin and crypto universe, but retail investors’ nominal holdings are still higher than ever, and rising.

The Morgan Stanley survey showed that 16% of EU retail investors’ holdings is in cryptocurrencies, more than rental property (14%), bonds (10%), and commodities (8%).

A survey last month by retail investment platform eToro showed that one in three retail investors plan to invest in crypto over the next 12 months, up from 18% in October. Even baby boomers are on board – 11% percent of those aged 55 and over plan to invest in crypto in the coming year.

In some ways, this should come as little surprise, given how much crypto has been seared into the public’s consciousness.

Hollywood star Matt Damon fronted a commercial for the trading app crypto.com titled ‘Fortune Favors The Brave’ in October. And only this week, as cryptocurrencies plunged and many stablecoins ‘broke the buck,’ former English footballer Michael Owen tweeted that his new non-fungible tokens (NFTs) “will be the first ever that can’t lose their initial value.”

U.S. Senator Elizabeth Warren last week wrote to pension fund Fidelity questioning the “appropriateness” of its decision to add bitcoin to its 401(k) retirement plan options due to crypto’s “significant risks of fraud, theft, and loss.”

The current market turmoil has brought these concerns into sharp focus. Blockchain analytics firm Glassnode said on Monday that bitcoin at $33,600 puts 40% of investors exposed to bitcoin under water.

Meanwhile, Morgan Stanley’s Sheena Shah points out that everyone who bought bitcoin over the last year is in the red when it trades below $28,000. On Thursday it fell as low as $25,400.

‘Mom and pop’ investors may not be able to hold out for much longer. U.S. household debt jumped $266 billion in the first quarter to $15.84 trillion. That’s $1.7 trillion higher than at the end of 2019, before the pandemic.

Meanwhile, the glut of household savings accumulated during lockdown as government stimulus checks rolled in is quickly disappearing. The U.S. personal savings rate fell to 6.2% in the first quarter, the lowest since 2013.

But crypto enthusiasts like Anthony Scaramucci, founder and managing partner of SkyBridge, see it differently. He likens the current volatility to the early days of Amazon stock, which had several large drawdowns in its first decade of existence.

“Investors should be willing to stomach it. Everyone says they’re long-term investors until they see short-term losses,” President Trump’s former director of communications told Reuters.

Related columns:

Crypto warnings invoke U.S. subprime bust, 2008, and all that (Reuters, May 5) nL5N2WX787

Fed fingers crossed for 1994 re-run as hiking path shortens (Reuters, May 5) nL5N2WX8T5

Pumped-up dollar compounding global liquidity squeeze (Reuters, April 22) nL8N2TT4SS

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Additional contributions from Medha Singh in Bangalore; Editing by Andrea Ricci)

((jamie.mcgeever@thomsonreuters.com; +1 (407) 288-5607; Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net))

TORONTO, May 12 (Reuters) – The Canadian dollar edged lower against its U.S. counterpart on Thursday as investors grew more nervous about global economic prospects and awaited a speech by a senior Bank of Canada official, but the move stopped short of Tuesday’s 18-month low.

Equity markets globally sank to a 1-1/2-year low and the safe-haven U.S. dollar .DXY hit its highest level in two decades, as fears grew that fast-rising inflation will drive a sharp jump in interest rates that brings the global economy to a standstill. nL2N2X40QC

Bank of Canada Deputy Governor Toni Gravelle will speak on commodities, growth and inflation, which could help guide expectations for another half-percentage-point interest rate hike at the June 1 policy announcement. The central bank is due to make the deputy governor’s remarks available at 11:35 a.m. EDT (1535 GMT). BOCWATCH

The Canadian dollar CAD= was trading 0.1% lower at 1.3005 to the greenback, or 76.89 U.S. cents. The currency traded in a range of 1.2978 to 1.3047, after touching on Tuesday its weakest level since November 2020 at 1.3052.

The price of oil, one of Canada’s major exports, rose as recession fears were offset by supply concerns and geopolitical tensions in Europe. U.S. crude CLc1 prices gained 0.4% to $106.18 a barrel. nL2N2X403C

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year CA10YT=RR eased 9.2 basis points to hit its lowest level since May 4 at 2.912%.

(Reporting by Fergal Smith
Editing by Paul Simao)

((fergal.smith@thomsonreuters.com; +1 647 480 7446;))

Adds details

By Manoj Kumar and Aftab Ahmed

NEW DELHI, May 12 (Reuters) – Rising food and energy prices pushed India’s annual retail inflation up towards an eight-year high in April, strengthening economists’ view that the central bank would have to raise interest rates more aggressively to curb prices.

Consumer price index-based inflation CPIY=ECI rose more than expected to 7.79% in April year-on-year, remaining above the Reserve Bank of India’s (RBI) tolerance band of 6% for a fourth month in a row, data released by National Statistics Office showed on Thursday.

April’s print was higher than 6.95% in the previous month and 4.23% a year ago. Analysts had forecast retail inflation at 7.5%, according to a Reuters poll.

RBI’s monetary policy committee (MPC), which raised the key repo rate (INREPO=ECI> by 40 basis points to 4.40% in an emergency meeting earlier this month, will consider more interest rate hikes at its June meeting, a source familiar with the matter told reporters on Wednesday.nL2N2X30U5

The next meeting of RBI’s MPC is scheduled for June 6-8.

Economists said rising food prices were an overriding worry for consumers – already hit hard during two years of the pandemic – as prices of edible oil and vegetables have surged amid fears of a fall in wheat output this year.

India’s annual retail headline inflation was at 8.33% in May 2014 when Prime Minister Narendra Modi took charge, while promising to bring down prices.

Prices of food items, which make up nearly half of the consumer price index (CPI), rose 8.38% year-on-year in April, compared with 7.68% a month earlier, pushed by rise in edible oil and vegetable prices.

A near 4% rupee depreciation against dollar this year has also made imported items costlier.

(Reporting by Manoj Kumar and Aftab Ahmed
Editing by Raissa Kasolowsky and Bernadette Baum)

((manoj.kumar@thomsonreuters.com; +91(11) 49548029;))

Recasts, adds comments, details, chart, updates prices

By Yoruk Bahceli

May 12 (Reuters) – Euro zone bond yields fell sharply on Thursday and were set for their best daily performance since early March after U.S. inflation data reinforced investors’ concerns over the outlook for growth given the prospects for aggressive central bank rate hikes.

The U.S. consumer price data, released on Wednesday, showed inflation slowed in April but was still higher than expected, while a narrower reading stripping out volatile food and energy prices rose sharply. nL2N2X315F

That eventually pushed stock markets and bond yields sharply lower, with much of the move coming after the European close, as the focus turned back to the economic toll that aggressive Fed rate hikes could have. nL2N2X32ZQ nL2N2X32KF

On Thursday, that weak sentiment was mirrored in Europe and stocks tumbled nearly 2% while U.S. stocks were also set for more selling pressure.

Bond yields fell sharply led by the longer-end of the yield curve and Germany’s 10-year yield, the benchmark for the bloc, was down over 13 bps by 1131 GMT, the lowest in two weeks and its biggest daily fall since March 1. DE10YT=RR Bond yields move inversely with prices.

“It feels like there is a lot of positioning getting flushed out around these (inflation) releases in the U.S. But more broadly we have an environment where growth concerns are accelerating… That comes at a central banks are becoming more and more hawkish,” said Antoine Bouvet, senior rates strategist at ING.

“In this environment if central banks get inflation under control and growth is slowing down, then all of a sudden bonds that didn’t really behave like safe havens over the past few months start behaving like safe havens.”

Market-based inflation gauges are also falling sharply, with the euro zone five-year five-year breakeven forward down to 2.20% on Thursday, having risen as high as 2.50% last week. EUIL5YF5Y=R

Germany’s two-year yield, sensitive to interest rate expectations, was down 10 bps to 0.04%, the lowest in three weeks and nearing negative territory, which it exited in mid-April. DE2YT=RR

Money markets meanwhile have trimmed their bets on ECB rate hikes, now pricing in 83 bps of hikes by year-end, compared to 95 bps at the start of the week. ECBWATCH

Moves this week have marked a remarkable turnaround for bond markets, where yields recently rose above key levels as investors ramped up their bets on rate hikes from central banks to combat decades-high inflation.

Germany’s 10-year yield is down 28 bps this week, set for its biggest weekly fall since early March.

That has been supportive of Italian debt, a key beneficiary of ECB stimulus, with the closely-watched risk premium over German bonds falling to 188 bps after rising over 200 bps recently, which was the highest since May 2020.

Its 10-year yield is at 2.75%, down from over 3% last week and was down 14 bps on Thursday. IT10YT=RR, DE10IT10=RR

Italy raised 6.75 billion euros from an auction of three, seven and 30-year bonds to strong demand. nAPN0KMLUI

In another auction, Ireland raised 1.25 billion euros from 10 and 23-year bonds. nL2N2X40RF

(Reporting by Yoruk Bahceli; Editing by Simon Cameron-Moore and Angus MacSwan)

((Yoruk.Bahceli@thomsonreuters.com; +44 20 7542 7571; Reuters Messaging: yoruk.bahceli@thomsonreuters.com))