MSCI’s gauge of stocks across the globe shed 0.19%, Dow Jones Industrial Average dropped 0.34%, S&P 500 shed 0.43%, Nasdaq Composite declined 0.95% and STOXX 600 index declined 1.69%
Global share markets slid on Thursday as U.S. inflation hit almost 8%, making it almost certain the U.S. Federal Reserve will raise interest rates next week, and the European Central Bank sped up the end of its massive stimulus program.
Data showed U.S. consumer inflation running at a 7.9% annualized clip in February, the largest annual increase in 40 years.
Wall Street fell on the data because, while markets expect the central bank to raise the Fed funds target rate by 25 basis points at the conclusion of next week’s monetary policy meeting, the CPI data suggested the FOMC could move ‘more aggressively’ to curb inflation, as promised by Fed Chair Jerome Powell last week.
The ECB earlier in the session said it will stop pumping money into financial markets this summer, paving the way for an increase in interest rates as soaring inflation outweighs concerns about the fallout from Russia’s invasion of Ukraine.
The euro retreated from overnight gains following the ECB announcement, and the dollar strengthened on the U.S. inflation report. The benchmark U.S. 10-year Treasury yield rose above 2% for the first time in two weeks.
Melissa Brown, managing director of applied research at Qontigo, said that some inflation can be beneficial to stock prices, but central banks have their work cut out for them managing inflation that is at multi-decade highs.
We’ve reached that tipping point between good inflation and bad inflation. It is driving volatility higher, and the higher volatility typically drives away investors, Brown said. Sentiment is very uncertain. Now that we are where we are, can (central bankers) tread that fine line between managing inflation and not pushing us into recession?
MSCI’s gauge of stocks across the globe shed 0.19% at 2212 GMT.
The Dow Jones Industrial Average dropped 112.18 points, or 0.34%, to 33,174.07, the S&P 500 shed 18.36 points, or 0.43%, to 4,259.52 and the Nasdaq Composite declined 125.58 points, or 0.95%, to 13,129.96.
The pan-European STOXX 600 index declined 1.69%.
Veneta Dimitrova, senior U.S. economist at Ned Davis Research, said that with the sharp rises in energy and other commodity markets due to the war in Ukraine, it will most likely take longer to reach peak inflation.
This means higher inflation for longer and a treacherous policy path for the Fed ahead, said Dimitrova, adding she expects the Fed to proceed with a 25-basis point interest rate increase next week.
She said: With all the geopolitical uncertainty and market volatility out there, the Fed doesn’t want to add to the uncertainty.