May 20, 2022

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Stocks deepen losses as US inflation data adds to case for Fed rate hike

Stocks deepen losses as US inflation data adds to case for Fed rate hike

  • US consumer price inflation reaches 7.9%
  • Wall Street futures drop 1% -1.4%
  • European Central Bank ends asset purchases in the third quarter
  • Euro Stoxx down 2.6%
  • Euro rebound and Eurozone bond yields

LONDON (Reuters) – Stocks fell on Thursday as inflation in the United States rose to nearly 8%, likely strengthening the case for the Federal Reserve’s rate hike, and the European Central Bank hastening its exit from office. Huge incentive programme.

The data showed that consumer inflation came in at 7.9% year-on-year in February, weighing on analyst expectations. Wall Street futures barely dipped on the data and were last down between 1% and 1.4%.

Stocks were already under pressure after the European Central Bank accelerated its exit from extraordinary stimulus, in a surprise move, as rising inflation overshadowed fears about Russia’s invasion of Ukraine.

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The European Central Bank said it plans to end asset purchases in the third quarter as it tries to rein in price growth in the euro zone, which was at a record high even before Moscow launched its offensive.

European shares fell 2.6%, extending losses after the European Central Bank’s statement. German DAX (.GDAXI) It led the decline, adding to previous losses to drop as much as 3.4%. Banking Stocks Mass Scale (.SX7E) It rose briefly from the lows of the nearby session and was last down 3.1%.

The euro rose half a percent before giving up its gains, and bond yields in the euro zone rose. The jump of the single currency pressured the dollar index into negative territory.

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“Central banks have to focus on the inflation mandate, and they see mounting pressures as a real problem,” said Brad Bechtel, global head of forex at Jefferies.

“Even if military action ends quickly, the ECB will struggle with inflation for a few months and that is the appropriate position to take.”

In earlier trading, stocks fell after a positive Asian session, as analysts warned that there was no immediate end in sight to the war in Ukraine – even after planned talks between Moscow and Kiev gave impetus to riskier bets.

The foreign ministers of Russia and Ukraine met in Turkey on Thursday, in the first high-level talks between the two countries since Moscow invaded its neighbor, but no visible progress was made. Read more

The prospect of talks boosted MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) by 1.8%.

However, analysts said gains in Asia, which came after European stocks had their best day in nearly two years on Wednesday, were always subject to a sharp reversal.

“As with any type of bear market, you always get face-ripping spikes in it, because people are reluctant to be deeply pessimistic,” said Michael Hewson, chief markets analyst at CMC Markets.

Further talks with the European Union are scheduled for Thursday, with leaders set to hold preliminary discussions at a summit starting Thursday night on a joint investment plan to boost the bloc’s independence in defense and energy.

MSCI World Stock Index (.MIWD00000PUS)Which measures stocks in 50 countries, rose 0.1%.

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After the European Central Bank’s statement, the euro rose 0.2% to $1.1099. It was down 0.3% before the decision, after its biggest daily jump in nearly six years the day before. Read more

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The dollar index fell into negative territory, having earlier gained 0.2%. The last time was at 97.957.

Oil rebounded in choppy trading after falling more than 12% on Wednesday, after the United Arab Emirates retracted comments that OPEC and its allies could increase production to help plug the gap in exports from Russia.

Brent crude futures rose $5.43, or 4.9 percent, to $115.20 a barrel.

A draft declaration on Thursday showed that European Union leaders will gradually stop buying Russian oil, gas and coal, as the union seeks to reduce its dependence on Russian energy sources, following a ban from the United States. Read more

Other riskier assets such as cryptocurrencies also declined, with bitcoin dropping 6.5%.

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Additional reporting by Tom Wilson in London. Editing by Sam Holmes, Raju Gopalakrishnan, Raisa Kasulowski and Alex Richardson

Our criteria: Thomson Reuters Trust Principles.