Global stock markets sag as inflation fears persist

LONDON: Stock markets retreated on Thursday as investors fret over red-hot inflation and the prospect of tighter monetary policy.

Wall Street’s three main indices spent part of the morning in positive territory, but then sank lower.

If the Dow was off only marginally, the broader S&P 500 shed 0.6 percent and the tech-heavy Nasdaq Composite fell 1.1 percent.

London dipped less than a tenth of a percent, but both Frankfurt and Paris fell further.

“The markets remain skitish following recent hot inflation readings that led to a sharp selloff on Tuesday,” analysts at US firm Schwab said in a note.

The data showed US annual consumer price inflation slowing by 8.3 per cent in August from 8.5 per cent in July but markets had expected a bigger fall.

The reading sparked a rout on equities as it stoked concern of more hety Federal Reserve interest rate hikes.

While higher borrowing costs help to cool inflation, they can also put a brake on economic growth.

Global consumer prices have soared this year on Russia’s invasion of Ukraine -- which has hiked energy and food costs -- and because of supply chain strains worsened by Covid lockdowns in China.

Investors were also tracking US government data on Thursday which showed a surprise, 0.3 percent bounce in retail sales in August.

But while the headline gain was much beter than the flat result economists had projected, the figure for July was revised down to show a 0.4 percent drop, so the August increase means the total remains below the level in June.

“The key takeaway from the report is that it does not connote much vigor in retail spending activity in August,” said analyst Patrick O’hare at Briefing.com. First-time jobless claims also fell last week, indicating the US labour market remains tight, and giving Fed policymakers more latitude to continue aggressively raising interest rates.

“Today’s US data dump did litle to change the market’s view of what the Fed might do next week,” said Forex.com analyst Fawad Razaqzada.

“Investors are confident the US central bank will tighten monetary policy by 75 basis points on Wednesday, something which could push the economy into slowdown and cause earnings to decline.”

Razaqzada said in this economic environment investors are finding it difficult to hold onto stocks which pay low dividends and are taking profits when they can.

Eventually, though, equities will “price in” or reflect the expectations of interest rate hikes.

“Until this happens, it is unlikely that the stock market will be able to shine very brightly,” said Razaqzada.

Asian bourses mostly logged cautious gains Thursday, but Shanghai and Seoul dipped.

The yen was under pressure as weak Japanese datafurtherfuelledspeculationofpossibleintervention from the Bank of Japan to support the unit.

Crude prices tumbled nearly four percent following a warning from the International Energy Agency that growth in demand could halt in the final months of this year.

UK’S main stock index ended a volatile session flat on Thursday as gains in banking and consumer stocks offset losses in energy shares.

Ater two sessions of sharp losses, the blue-chip FTSE 100 paused as banks rose 1.8% on bets of a 70% chance that the Bank of England would deliver a 75-basis-point interest rate hike on Sept. 22.

While data on Wednesday showed that inflation surprisingly fell in August, a BOE survey said the British public’s expectations for inflation over the coming year rose to a record high last month.

“We have seen some calm come back into the markets and at the moment, investors seem to be taking the view that perhaps the selloff earlier in the week was overdone,” said David Jones, chief market strategist at Capital.com.

The broader theme remained one of worry though as investors freted over tighter monetary policy by major central banks squeezing global economic growth. The more domestically oriented FTSE 250 rose 0.2% thanks to gains in consumer discretionary stocks.

Homebuilders rebounded 3.7% ater losing more than 3% in each of the last two sessions, as the sector braces for a tough market amid rising mortgage rates and a worsening cost-of-living crisis.

A slump in crude prices due to demand worries sent Shell down 1.1%. The oil and gas behemoth named Wael Sawan, the head of its integrated gas and renewables division, as the new CEO to replace Ben van Beurden, who will step down at year-end.

Shares in Britain’s Vodafone rose around 2% ater a media report said KKR & Co and Global Infrastructure Partners were among suitors for a stake in the group’s wireless towers unit Vantage Towers AG.