LONDON – Stocks went out of steam on Wednesday as the outlook for economic growth and worries about rising inflation hit hurt feelings, as the UK underlined exactly how high interest rates could be if inflation fell to 9%.
European stocks were mostly low and Wall Street futures point to a weak opening.
Many analysts have described this week’s sharp rally as a short-term bounce of the general type during a longer downward trend for equities. Given so much macroeconomic uncertainty, risky assets are hardly willing to predict the end of sales after the first five months of the year have been wound up.
Mark Hefele, chief investment officer at UBS Global Wealth, said: “Investors’ attitudes and confidence are shaky and as a result, we will see volatile and volatile markets until we get more clarity about 3Rs – rates, recessions and risks. Management.
By 1115 GMT, the broader euro STOXX 600 was down 0.35%, while the UK FTSE 100 was down 0.23%.
Outside of Japan, the broader MSCI index of Asia-Pacific shares rose 0.68% and is the longest winning trend since February. Japan’s Nikkei rose 0.94% and miners Australia’s shares rose nearly 1%.
The MSCI World Equity Index rose 0.1% and is up nearly 2% so far this week, but is down 16% from its January high.
In the currency market, sterling was the biggest loser, with UK consumer inflation falling 1% to 23 1.2373 after hitting 9% in April, a 40-year high and fairly consistent with analysts’ expectations. The pound has risen sharply this week and was down for some profit on Wednesday.
British inflation is now the highest in the major economies but prices are rising rapidly around the world, forcing even central banks to raise rates in the face of slowing economic growth.
Canada’s April inflation reading is also later Wednesday.
The US dollar rose 0.3% to 103.62 after a sharp fall on Thursday and reached its two-decade high last week, with the euro falling the same amount to 0 1.0513.
Positive data helped lift the mood this week, with US retail sales forecasting a strong growth in April and exceeding industrial production expectations.
Wednesday’s data showed that Japan’s economy contracted less than expected in the first quarter.
Shanghai is nearing the end of its long-running lockdown and has made calm remarks to technology executives in the latest sign of easing China’s vice-premier pressure.
However, the good news was offset by a reminder from Federal Reserve Chair Jerome Powell that there would be a demand for a rate hike to control inflation and there would probably be some pain.
Investors set the price at a 50 basis point US rate hike in June and July, and see the benchmark Fed fund rate knocking 3% early next year.
US Treasury yields remained stable on Wednesday, below recent multi-year highs, but German 2-year government bond yields reached their highest level since December 2011 after the central banker’s remarks. The European Central Bank’s Class Knott said on Tuesday that it was possible to raise rates by 50 basis points in July if inflation continued to expand.
Commodities have rallied with stocks this week, though most prices are below recent highs.
Brent crude futures rose 0.85% to $ 112.88 a barrel on Wednesday and US crude futures rose 1.19% to 3 113.74 a barrel.
The S&P global rating has downgraded the growth forecast for China, the United States and the eurozone, underlining the weak outlook for the world’s major economies.
Chief economist Paul F. “The two developments have changed the macro picture,” Gruenwald said, pointing to Russia’s aggression and inflation in Ukraine, which is higher, broader and more stable than previously thought.
(Additional report by Tom Westbrook in Singapore; edited by Kim Coggill, William McLean)