Strong US inflation dampens stock market enthusiasm

AFP | London                                                         

The Daily Tribune – www.newsofbahrain.com

Stock markets in Europe retreated from their highs after a cautious open on Wall Street as US consumer inflation data came in stronger than expected, denting hopes that policymakers will cut interest rates anytime soon.

The highly anticipated CPI reading for December showed prices rising by 3.4 percent year-on-year, up from 3.1 percent the previous month and above most analyst forecasts of 3.2-3.3 percent.

And the so-called core inflation rate that strips out food and energy costs stood at 3.9 percent, down from 4.0 percent but higher than the consensus for 3.8 percent. Global equity markets had powered higher in the closing months of last year on expectations the Federal Reserve and the European Central Bank could soon begin loosening monetary policy as pricing pressures eased.

That prospect now seems less likely, prompting a lower opening on Wall Street before recovering, while European stocks pared earlier gains. “The rise in headline inflation should dampen expectations for an imminent rate cut as the Fed will be conscious of pinning inflation down to its two percent target before releasing the pressure,” said Richard Flax, chief investment officer at the European wealth manager Moneyfarm. Callie Cox, investment analyst at trading platform eToro, said: “The heat looks to be driven by services prices, which could force markets to keep walking back the rate cut trade.”

For many investors the data might have been an excuse to lock in profits from the strong recent run, with Cox adding that most still expect inflation to ease as pressures remain on the global economic outlook.

“We need to see significant weakness in the job market before we’re worried about the stock market,” she said. The looming corporate earnings season and its clues on the outlook for 2024 also argued for a cautious stance after Wall Street jumped on Wednesday, led by technology stocks.

In Asia, Tokyo led the way earlier yesterday, piling on 1.8 percent to finish above 35,000 points for the first time since early 1990 as a weak yen boosted exporters. The eased expectations of US rate cuts gave a boost to the dollar, which reversed earlier losses against its main rival currencies.

Elsewhere, Bitcoin surged after the New York open, rising to nearly $49,000 on news that the US Securities and Ex-change Commission had given the goahead for wider trading of the world’s biggest cryptocurrency in the form of ex-change-traded funds.

The SEC approved the plans for 11 ETFs to list on leading exchanges including the New York Stock Exchange “on an ac-celerated basis”, it said. ETFs are traded on public markets, granting investors exposure to price movements in asset prices without taking direct ownership of the underlying assets.