Global Stocks Lower After Inflation Fuels Rate Fears
BEIJING—Global stock markets declined Thursday after signs of enduring upward pressure on U.S. 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 U.S. 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 percent to 7,888.49. The DAX in Frankfurt declined 0.9 percent to 15,173.04 and the CAC 40 in Paris lost 0.8 percent to 7,176.96.
On Wall Street, the future for the benchmark S&P 500 index was 0.7 percent lower. That for the Dow Jones Industrial Average was off 0.1 percent.
On Wednesday, the S&P 500 lost 0.5 percent while the Dow edged up less than 0.1 percent. The Nasdaq fell 0.7 percent.
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 percent to 3,310.65 and the Nikkei 225 in Tokyo sank less than 0.1 percent to 27,498.87. The Hang Seng in Hong Kong gave up 0.9 percent to 20,429.46.
The Kospi in Seoul rose 0.6 percent to 2,427.85 and Sydney’s S&P-ASX 200 added less than 0.1 percent to 7,255.40.
India’s Sensex lost 0.8 percent 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 percent to 4.75 percent from close to zero at the start of 2022 in an effort to cool inflation to 2 percent.
After the latest inflation reading, traders expect the Fed to raise its key rate to at least 5.25 percent by June. Some expect 5.5 percent, 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 percent 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 percent after it warned there’s “substantial doubt” about its ability to stay in business over the next year. It reported a net loss of $657.9 million for the last year.
In the bond market, the yield on the 10-year U.S. Treasury, or the difference between the market price and the payout at maturity, widened to 3.99 percent on Wednesday from 3.93 percent late Tuesday. It is near its highest level in three months after exceeding 4 percent earlier in the day.
The two-year yield, which moves more on expectations for the Fed, widened to 4.89 percent from 4.82 percent.
In energy markets, benchmark U.S. crude declined 14 cents to $77.55 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 64 cents on Wednesday to $77.69. Brent crude, the price basis for international oil trading, retreated 11 cents to $84.20 per barrel in London. It gained 86 cents from the previous session to $84.31 a barrel.
The dollar rose to 136.59 yen from Wednesday’s 136.17 yen. The euro declined to $1.0634 from $1.0658.
By Joe McDonald
