Stubborn inflation weighs on US and global markets

NEW YORK

Wall Street pointed to another day of declines when markets open on Thursday after more evidence was released of stubborn inflation that has already led to massive selling in Asia and Europe.

Futures for the S&P 500 were down 0.5% and Dow industrials lost 0.3% a day after a US government report showed inflation remained near a high of four decades.

Inflation slowed somewhat in April, falling to 8.3% from 8.5% in March, according to the US Labor Department, but the decline was smaller than expected and bolstered expectations that the Federal Reserve will continue to raise interest rates to counter the rise. prices.

Economists expect U.S. data released Thursday to show that the costs of goods before they reach consumers, called producer prices, are continuing to rise. These costs can be passed on to consumers, as businesses 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 grapple with supply disruptions and higher prices. This raises fears that the country is heading into a recession.

Gross domestic product, the broadest measure of economic activity, rose 0.8% in the period, from 1.3% in the previous quarter, the Office for National Statistics said on Thursday. Retail sales figures show UK consumers are already cutting back on spending. Economists predict that the UK will see the biggest fall in living standards this year in more than six decades.

The British FTSE 100 lost 2% at noon, the German DAX fell 1.8%, while the CAC 40 in Paris lost 2.1%.

In Asia, the promise of Chinese leaders to further support the slowing economy seems to have had little impact.

Hong Kong’s benchmark fell 2.2% to 19,380.34 following the arrests of several prominent democracy advocates, including a retired Catholic cardinal.

The arrests of Cardinal Joseph Zen, singer Denise Ho and others followed last weekend’s choice of a hardline chief executive for the semi-autonomous Chinese territory, where Beijing has tightened controls after taking control of the former British colony in 1997.

In other Asian exchanges, Tokyo’s Nikkei 225 fell 1.8% to 25,748.72.

The Shanghai Composite lost 0.1% to 3,054.99. Australia’s S&P/ASX 200 fell 1.8% to 6,941.00. The South Korean Kospi slipped 1.6% to 2,550.08.

Economists said the U.S. inflation report will keep the Fed on track for quick and potentially steep interest rate hikes in the months ahead.

To contain high inflation, the Fed has already pulled its main short-term interest rate from its all-time high near zero, where it has spent most of the pandemic. He also said he may continue to raise rates to double the usual amount at future meetings.

Such measures are designed to slow the economy to help stifle inflation, but the Fed risks causing a recession if it raises rates too high or too quickly. Higher rates tend to drive down the prices of stocks and all kinds of investments in the meantime. Safe, high-yield Treasury bonds, for example, are becoming more attractive to investors.

Higher rates make big tech companies, other high-growth stocks, and even cryptocurrencies relatively less attractive.

Bitcoin continued its slide, falling to around $25,000 at one point on Thursday, dragging a slew of other digital currencies with it. Bitcoin has lost 28% of its value in the past week alone and is down 60% from highs near $70,000 at the end of last year.

In other trading, benchmark U.S. oil fell $1.26 to $104.45 a barrel in electronic trading on the New York Mercantile Exchange. It gained 6% on Wednesday.

Brent crude, the international price standard, fell $1.41 to $106.10 a 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.