Stocks drop on concerns over economic growth, inflation

Published On: May 18, 2022Categories: Stocks & Shares1.6 min read

Many analysts have characterised this week’s sharp rally as a short-term bounce of the sort common during a lengthier downward trend for equities

A rebound in stocks ran out of steam on Wednesday as concerns about the economic growth outlook and rising inflation knocked sentiment, while a UK inflation reading of 9% underlined just how much higher interest rates might be headed.

Asian stocks managed to eek out their fourth straight session of gains but in Europe shares were mixed and futures on Wall Street pointed to a weaker open.

Many analysts have characterised this week’s sharp rally as a short-term bounce of the sort common during a lengthier downward trend for equities. Few are willing to predict the end to selling after a bruising first five months of the year for risky assets given so much macroeconomic uncertainty.

Investor sentiment and confidence remain shaky, and as a result, we are likely to see volatile and choppy markets until we get further clarity on the 3Rs — rates, recession, and risk, said Mark Haefele, chief investment officer at UBS Global Wealth Management.

By 0810 GMT, the broad Euro STOXX 600 was off 0.1%, while Britain’s FTSE 100 was also 0.1% lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6% and is on its longest winning streak since February. Japan’s Nikkei rose 0.94% and miners led Australian shares about 1% higher.

The MSCI World Equity Index inched up 0.1% and is nearly 2% higher so far this week, but remains down 16% from its peak in January.

In currency markets, sterling was the big loser, shedding 0.9% to $1.2387 after UK consumer price inflation hit 9% in April, a 40-year high and roughly in line with analysts’ expectations. The pound had risen sharply this week and some of Wednesday’s fall was down to profit taking.

British inflation is now the highest among major economies but prices are rising rapidly across the world, forcing central banks to launch a series of rate hikes even in the face of slowing economic growth momentum.

Canada’s April inflation reading is also due later on Wednesday.

The U.S. dollar rose 0.3% to 103.61, heading back towards its two-decade high reached last week, while the euro fell by a similar amount to $1.0515.

About the Author: Jonathan Adams

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