Global stocks lower after inflation fuels rate fears

BEIJING: Global stock markets declined Thursday after signs of enduring upward pressure on US and European prices raised expectations that interest rates will stay higher for longer.

London, Shanghai, Frankfurt and Tokyo retreated. Oil prices fell.

Wall Street futures were lower after a survey showed prices paid by US manufacturers rose in February for the first time in five months despite rate increases to cool economic activity and surging inflation.

That prompted traders to raise forecasts for how high the Federal Reserve might hike rates and for when cuts might start.

“Inflation expectations are climbing again,” said Brian Levitt of Invesco in a report. “The Fed pause may not be coming now until the middle of the year, at the earliest.” Elsewhere, data Wednesday from Germany, Europe's biggest economy, showed inflation held steady in February after rate hikes by the European Central Bank.

There are “very few to no signs of any disinflationary process outside of energy and commodity prices,” Carsten Brzeski of ING said in a report.

In early trading, the FTSE 100 in London gave up 0.3 per cent to 7,888.49. The DAX in Frankfurt declined 0.9 per cent to 15,173.04 and the CAC 40 in Paris lost 0.8 per cent to 7,176.96.

On Wall Street, the future for the benchmark S&P 500 index was 0.7 per cent lower. That for the Dow Jones Industrial Average was off 0.1 per cent.

On Wednesday, the S&P 500 lost 0.5 per cent while the Dow edged up less than 0.1 per cent. The Nasdaq fell 0.7 per cent.

An industry group, the Institute for Supply Management, reported Wednesday a monthly index of prices paid by manufacturers rose to 51.3 from January's 44.5 on a 100-point scale on which numbers above 50 show an increase.

In Asia, the Shanghai Composite Index lost less than 0.1 per cent to 3,310.65 and the Nikkei 225 in Tokyo sank less than 0.1 per cent to 27,498.87. The Hang Seng in Hong Kong gave up 0.9 per cent to 20,429.46.

The Kospi in Seoul rose 0.6 per cent to 2,427.85 and Sydney's S&P-ASX 200 added less than 0.1 per cent to 7,255.40.

India's Sensex lost 0.8 per cent to 58,908.28. New Zealand and Jakarta gained while Singapore and Bangkok retreated.

Some traders hoped the Fed might ease off rate increases as activity cooled and possibly start to cut rates by the end of this year. But those hopes have been dampened by signs inflation is sticking at high levels and warnings by Fed Chair Jerome Powell and other officials that rates will stay elevated for an extended period until price pressures are extinguished.

The Fed has raised its benchmark lending rate to 4.5 per cent to 4.75 per cent from close to zero at the start of 2022 in an effort to cool inflation to 2 per cent.

After the latest inflation reading, traders expect the Fed to raise its key rate to at least 5.25 per cent by June. Some expect 5.5 per cent, the highest level in 22 years.

The Fed's latest increase was 0.25 percentage points, half the more aggressive level of previous increases, but one Fed board member has publicly suggested going back to 0.5-point hikes.

Some retailers have offered discouraging forecasts due to inflation and other pressure on consumer spending.

Lowe's fell 5.6 per cent for one of the largest losses in the S&P 500 after it reported weaker revenue for the latest quarter than expected.

Vaccine company Novavax tumbled 25.9 per cent after it warned there's “substantial doubt” about its ability to stay in business over the next year. It reported a net loss of USD 657.9 million for the last year.

In the bond market, the yield on the 10-year US Treasury, or the difference between the market price and the payout at maturity, widened to 3.99 per cent on Wednesday from from 3.93 per cent late Tuesday. It is near its highest level in three months after exceeding 4 per cent earlier in the day.

The two-year yield, which moves more on expectations for the Fed, widened to 4.89 per cent from 4.82 per cent.

In energy markets, benchmark US crude declined 14 cents to USD 77.55 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 64 cents on Wednesday to USD 77.69. Brent crude, the price basis for international oil trading, retreated 11 cents to USD 84.20 per barrel in London. It gained 86 cents the previous session to USD 84.31 a barrel.

The dollar rose to 136.59 yen from Wednesday's 136.17 yen. The euro declined to USD 1.0634 from USD 1.0658.