Stock market recovery recovers, UK inflation hits 40-year high

LONDON (Reuters) – A stock rally ran out of steam on Wednesday as concerns about the outlook for economic growth and rising inflation dampened sentiment, while the UK’s 9% inflation reading underlined how far higher interest rates could go.

Asian stocks managed to post gains for the fourth consecutive session, but equities in Europe were mixed and Wall Street futures point to a weak open.

Several analysts have described this week’s sharp rally as a short-term bounce of the kind common during a long downtrend in stocks. Few are willing to predict the end of the sell-off after the first five bruises of the year for risky assets given so much macroeconomic uncertainty.

“Investor sentiment and confidence remain shaken, and as a result, we are likely to see choppy and volatile markets until we have more clarity on the 3Rs – rates, stagnation and risks,” said Mark Heffel, chief investment officer at UBS Global. Wealth management.

By 0810 GMT, the Euro Stoxx 600 is wide (.stoxx) It is down 0.1%, while Britain’s FTSE 100 is down (.FTSE) It was also 0.1% lower.

MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It rose 0.6% and is in its longest winning streak since February. Japan’s Nikkei Index (.N225) It rose 0.94% and miners led Australian shares (.AXJO) About 1% higher.

MSCI World Stock Index (.MIWD00000PUS.) A slight 0.1% is up about 2% so far this week, but still 16% down from its January peak.

In the currency markets, the British pound was the biggest loser, falling 0.9% to $1.2387 after UK consumer price inflation hit 9% in April, a 40-year high and roughly in line with analyst expectations. The Pound rose sharply this week and some of its decline on Wednesday was attributed to profit taking.

British inflation is now the highest among major economies, but prices are rising rapidly around the world, forcing central banks to launch a series of interest rate increases even in the face of slowing economic growth momentum.

Canadian inflation reading for April is also due later on Wednesday.

And the dollar rose 0.3 percent to 103.61, heading back towards its highest level in two decades, which it recorded last week, while the euro fell by a similar amount to 1.0515 dollars.

negative shocks

Positive data helped the mood in the short term, with the US retail sales meeting expected a strong increase in April and industrial production exceeding expectations. Read more

Data on Wednesday showed the Japanese economy contracted less than expected in the first quarter. Read more

Shanghai is also nearing the end of its prolonged lockdown and China’s vice premier made soothing comments to tech executives in the latest sign of easing pressure. Read more

However, any good news was offset by a reminder from Federal Reserve Chair Jerome Powell that getting inflation under control will require raising interest rates and possibly some pain. Read more

Investors priced US interest rate increases by 50 basis points in June and July and see the benchmark Fed funds rate rise by 3% by early next year.

US Treasury yields were flat on Wednesday and below recent multi-year highs, but the two-year German government bond yield surged to its highest level since December 2011 after more hawkish comments from the central bank. The European Central Bank’s Klaas Knott said on Tuesday that a 50 basis point rate hike in July was possible if inflation had widened.

Commodities rallied with stocks this week as markets found reasons to hold back growth hopes, even though most prices are below recent highs.

On Wednesday, Brent crude futures rose 1.3% to $113.38 a barrel and US crude futures rose 1.64% to $114.24 a barrel.

Ratings agency Standard & Poor’s has cut growth forecasts for China, the United States and the eurozone, underlining the weak outlook for the world’s major economies.

“The global economy continues to experience an unusually high number of negative shocks,” said Chief Economist Paul F. Groenewald.

“Two developments changed the overall picture,” he said, referring to Russia’s invasion of Ukraine and inflation, which turned out to be higher, broader and more stable than initially thought.

Additional reporting by Tom Westbrook in Singapore. Editing by Kim Coogle

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