Global stocks rebound, dispelling inflation fears

Global stocks rebounded on Friday from losses earlier in the week, ignoring data showing wholesale prices in the United States climbed 11% in April from a year earlier.

Gains in Europe and Asia followed a mixed, muted close Thursday on Wall Street. Oil prices and US futures were also higher.

Investors are wondering about the continuation of inflation and the US central bank’s response to it. Trading has been volatile, with indices subject to wild swings as investors try to shield their portfolios from the impact of the highest inflation in decades.

“Nothing has materially changed in the world since yesterday, and on the contrary, Russia/Europe risks are increasing. Today’s rally looks more like a technical rebound from a torrid week than a structural reversal in sentiment. As such, it should be taken with a grain of salt,” Oanda’s Jeffrey Halley said in a statement.

Federal Reserve Chairman Jerome Powell, who just won Senate confirmation for a second four-year term, acknowledged for the first time on Thursday that high inflation and weakness in other economies could thwart his efforts to avoid a recession.

Powell had previously sought to portray the Fed’s efforts to tighten interest rates as consistent with a so-called “soft landing” for the economy.

In Frankfurt, the DAX gained 1.1% to 13,894.26. Britain’s FTSE 100 gained 1.3% to 7,324.04, while the CAC 40 in Paris gained 1.2% to 6,281.46. The S&P 500 future rose 1.2% while that of the Dow Industrials gained 0.8%.

In Asian trading, Hong Kong’s Hang Seng Index gained 2.7% to 19,898.77 and the Nikkei 225 in Tokyo jumped 2.6% to 26,427.65. South Korea’s Kospi gained 2.1% to 2,604.24 and in Sydney, the S&P/ASX 200 rose 1.9% to 7,075.10.

The Shanghai Composite Index gained 1% to 3,084.28 and India’s Sensex climbed 1.4%.

Actions taken by central banks to combat price increases by raising interest rates are dragging some currencies down as the dollar rises. The Japanese yen has weakened sharply in recent months, while the Chinese yuan, whose value against other currencies is regulated, has also weakened.

Likewise, the euro weakened amid fighting in Ukraine and uncertainty surrounding Russian oil and gas supplies. The euro was trading at $1.0410 early Friday, after falling below the $1.0500 level it had been above for most of the week.

“European risk sentiment is maimed by news of Russia cutting gas supplies in retaliation for sanctions,” Stephen Innes of SPI Asset Management said in a commentary.

“The EUR (euro) crashed to $1.05 and even dropped to $1.04 on the news. Indeed, it really highlights the uncertainty as we move forward with threat and disruption of Russian energy supply,” he said.

The dollar was at 128.67 yen, down from 128.42. Against the Chinese yuan, it was 6.79 to the dollar, down from around 6.41 yuan a month ago.

On Thursday, the S&P 500 closed down 0.1% and the Dow Jones Industrial Average fell 0.3%. The Nasdaq edged up 0.1%.

The indices are on pace for steep weekly declines, extending the market slump so far this year. The benchmark S&P 500 is now down 17.5% this year, while the Nasdaq is down 27.3%.

Small company stocks held up much better than the rest of the market. The Russell 2000 rose 1.2%.

The Labor Department’s report that wholesale prices rose 11% in April from a year earlier adds to concerns that manufacturing costs are being passed on to consumers, who could cut spending, which which hinders economic growth.

On Wednesday, the Labor Department’s report on consumer prices showed a bigger-than-expected rise in prices excluding food and gasoline. This “underlying inflation” may be more predictive of future trends.

Inflation was aggravated by Russia’s invasion of Ukraine and the impact of the conflict on rising energy prices. China’s recent lockdowns amid concerns over a resurgence of COVID-19 have also deepened supply chain and production issues at the center of rising inflation.

In other trading, the benchmark U.S. crude oil gained 97 cents to $107.10 a barrel in electronic trading on the New York Mercantile Exchange. It gained 42 cents to $106.13 a barrel on Thursday.

Brent crude, the pricing basis for international crude trading, added $1.18 to $108.63 a barrel.