‘Stubborn’ inflation weighs on markets
Asian shares track tech-led sell-off
NEW YORK, May 12, (AP): Wall Street pointed toward another down day when markets opened Thursday following the release of more evidence of stubborn inflation that has already led to sell-offs in Asia and Europe.
Futures for the S&P 500 were 0.5% lower and the Dow industrials lost 0.3% a day after a U.S. government report showed inflation remains close to a fourdecade high.
Inflation slowed a touch in April, down to 8.3% from 8.5% in March, according to the U.S. Labor Department., but the decline was smaller than hoped for and it reinforced expectations that the Federal Reserve will continue to raise interest rates to counter rising prices.
Economists expect U.S. data being released Thursday will reveal that the costs of goods before they reach consumers, called producer prices, continue to rise. Those costs can be passed on to consumers as companies are forced to cover higher expenses.
Also on Thursday, Britain said its economy grew at the slowest pace in a year during the first quarter as retailers and manufacturers struggled with supply disruptions and higher prices. That is raising fears that the country may be headed for a recession.
Gross domestic product, the broadest measure of economic activity, rose 0.8% in the period, slowing from 1.3% in the previous quarter, the Office for National Statistics said Thursday. Retail sales figures show British consumers are already cutting spending. Economists forecast the U.K. will see the biggest drop in living standards in more than six decades this year.
Britain’s FTSE 100 lost 2% in midday trading, Germany’s DAX fell 1.8%, while the CAC 40 in Paris lost 2.1%.
Economists said the U.S. inflation report will keep the Fed on track for rapid and potentially sharp increases in interest rates in upcoming months.
To corral high inflation, the Fed has already pulled its key short-term interest rate off its record low near zero, where it spent most of the pandemic. It also said it may continue to hike rates by double the usual amount at upcoming meetings.
Such moves are designed to slow the economy to help quash inflation, but the Fed risks causing a recession if it raises rates too high or too quickly. Higher rates tend to pull prices for stocks and all kinds of investments lower in the meantime. Higher-yielding, safe Treasury bonds, for example, become more attractive to investors.
Higher rates make big technology companies, other highgrowth stocks and even cryptocurrencies relatively less appealing.
Bitcoin continued its slide, falling to around $25,000 at one point Thursday, dragging a slew of other digital currencies down with it. Bitcoin has lost 28% of its value in the past week alone and is off 60% from highs near $70,000 late last year.
In other trading, benchmark U.S. oil dropped $1.26 to $104.45 per barrel in electronic trading on the New York Mercantile Exchange. It gained 6% on Wednesday.
Brent crude, the international pricing standard, shed $1.41 to $106.10 per barrel. It added 4.9% the day before.
The dollar slipped to 128.58 Japanese yen from 129.95 yen. The euro fell to $1.0408 from $1.0517.
Shares fell in Asia on Thursday after the release of worse inflation data than expected sparked heavy selling of technology stocks on Wall Street.
Hong Kong’s benchmark fell 2.2% to 19385.47 following the arrests of several prominent democracy advocates, including a retired Roman Catholic cardinal.
The arrests of Cardinal Joseph Zen, singer Denise Ho and others followed the choice last weekend of a hard-line chief executive for the semi-autonomous Chinese territory, where Beijing has been tightening controls.
More broadly, markets are focused on inflation as central banks wind down support for economies that was rolled out during the pandemic. The U.S. Federal Reserve, for example, has flipped aggressively toward raising interest rates after seeing high inflation last longer than it expected.
Wednesday’s report from the U.S. Labor Department showed inflation slowed a touch in April, down to 8.3% from 8.5% in March. Investors also found some glass-halffull signals in the data suggesting the consumer price index, or CPI, may be peaking and set to ease further, but the numbers were still higher than economists forecast.
“The consensus is that inflation has peaked, at least in the US. A floor for global equity markets depends on how quickly US CPI inflation falls,” Stephen Innes of SPI Asset Management said in a commentary.
Producer prices are due later Thursday.
In other Asian trading, Tokyo’s Nikkei 225 gave up 1.8% to 25,748.72.
The Shanghai Composite index shed 0.5% to 3,043.59. Australia’s S&P/ASX 200 lost 1.6% to 6,936.90. South Korea’s Kospi slipped 1.5% to 2,552.45.
Apart from interest rates, in China, shutdowns meant to stem COVID are raising the risk of more supply chain disruptions for global companies and a slowdown in the world’s second-largest economy.
The war in Ukraine, meanwhile, is threatening to keep inflation high because of disruptions to the oil and natural gas markets.
Benchmark U.S. oil dropped $2.04 to $103.67 per barrel in electronic trading on the New York Mercantile Exchange. It gained 6% on Wednesday.
Brent crude, the international pricing standard, shed $1.97 to $105.54 per barrel. It added 4.9% the day before.
In currency trading, the dollar slipped to 129.62 Japanese yen from 129.95 yen. The euro fell to $1.0506 from $1.0517.