Stocks wither, dollar gains after strong inflation, and jobs data

(Reuters) – Equity markets faltered on Thursday, weighed down by slumping Chinese stocks and rising bond market costs, as rising European inflation and US jobless claims data fueled expectations of further hikes in global interest rates.

European stocks had already fallen to a one-month low (.STOXX) by the time eurozone inflation figures justified what is widely expected to be another 50 basis point rise in already high ECB rates this decade. the month.

Consumer price inflation in the 20 countries sharing the euro eased to 8.5% in February from 8.6% in the previous month on lower energy prices, a barely noticeable move that beats forecasts of 8.2% by economists polled by Reuters.

It wasn’t enough to lift the euro or stem the dollar’s rally though/FRX While European stocks pared lower, Wall Street stocks were flat or lower as US jobless claims numbers fell again.

Kate Jukes, a strategist at Societe Generale, said the inflation figures “just mean that the whole market is going to raise its estimate of peak rates in Europe and the US.” “It is proving to be more consistent than expected just about everywhere.”

The Dow Jones Industrial Average (.DJI) rose just 0.18% to 32719.3 while the S&P 500 (.SPX) lost 0.47% to 3933.01.

The Nasdaq Composite (.IXIC) fell 0.8% to 11,288.02, with Tesla Inc. (TSLA.O) by about 7%. The company has said it will cut vehicle assembly costs by half in future generations of cars, but CEO Elon Musk has yet to unveil a long-awaited affordable electric minivan.

MSCI’s broadest index of world stocks (.MIWD00000PUS) fell 0.57% to its lowest level in nearly seven weeks.

Investors’ enthusiasm about China’s economic reopening faded after Beijing loosened its strict COVID-19 controls in December, as analysts look for more evidence to gauge the pace of economic recovery.

Stock and bond markets in the past weeks have been driven by various factors, said Kevin Gardiner, global investment analyst at Rothschild & Co. The main concern in stocks is the expectation of corporate earnings pressures, while bonds are sensitive to inflation and price expectations.

“In the past few months, stock markets have internalized that, despite all these predictions of an imminent collapse in profits, a sharp economic slowdown has not materialized,” he said.

He said that the decline in natural gas prices and the removal of supply chain bottlenecks after the Russian invasion of Ukraine is a neglected development in the capital markets.

“The economic impact of tightening remains a mystery,” he said. “Profitability may not be that fragile, at least not yet.”

Overnight, both benchmark government bonds and stocks took a hit, as inflation indicators from Germany and the US reinforced expectations that interest rates would rise and stay there for longer.

The two-year German government bond yield rose to its highest level since October 2008.

In the United States, manufacturing activity contracted for the fourth consecutive month in February, but a measure of raw materials prices increased last month, raising fears of persistent inflation.

“The economic data has surprised the upside,” said Stephen Oh, global head of credit and fixed income at PineBridge Investments. He said any unexpected outcome of the data will prompt policy makers to be more aggressive, and this resets market expectations.

“Now the question becomes, have we reset expectations sufficiently and where do we go from here?” He said.

pressure points

The benchmark 10-year Treasury yield reached a four-month high of 4.066%, while the two-year yield also advanced to 4.929%, a new high in 16 years.

Investors still mostly expect the Federal Reserve to raise interest rates by 25 basis points at its next meeting later this month, but expectations for an even larger 50 basis point hike have increased. The probability that the Fed’s policy rate, currently set in a range of 4.5% to 4.75%, could peak above 5.5%, is at 53%, compared to 41.5% on Feb. 28, according to the CME Fed Tool.

In currency markets, the US Dollar Index, which measures its value against a basket of major peers, rose 0.54% to $105,045.

The euro lost about 0.7% and the pound fell 0.86%, with higher-than-expected inflation numbers adding pressure on the European Central Bank to raise interest rates.

In the crypto world, shares in Silvergate Capital (SI.N) fell 46% after the cryptocurrency-focused bank said it was postponing its annual report and assessing its ability to operate as a going concern. Bitcoin price was last down around 1.2% at $23,275.

Oil prices pared early gains as signs of a strong economic recovery in China, the largest importer of crude, were offset by concerns about the impact of potential increases on European interest rates. US crude rose 0.51% to $78.09 a barrel, and Brent crude was $84.64, up 0.39% on the day.

Spot gold was slightly lower at $1,834.29 an ounce.

Additional reporting by Laurence Delevingne in Boston and Neil Mackenzie and Mark Jones in London. Editing by Tomasz Janowski, Sharon Singleton and Emilia Sithole Matares

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