Stock markets diverged on Tuesday as investors digested official data showing US inflation hit a four-decade high in March, raising expectations the Federal Reserve will act more aggressively to tame prices.
Oil prices, meanwhile, surged as Shanghai began to ease Covid restrictions and the OPEC group of crude-producing nations lowered its forecast for global demand this year, citing the Ukraine war’s impact on the world economy.
Inflation had already been rising worldwide in recent months as economies emerge from Covid lockdowns, but Russia’s invasion of Ukraine and sanctions against Moscow have pushed energy and food prices even higher worldwide.
US inflation continued to surge in March, sending the consumer price index (CPI) up 8.5 percent over the past 12 months, its largest increase since 1981, according to the US Labor Department.
Wall Street stocks advanced nevertheless, with the Dow Jones Industrial Average rising 0.8 percent, the S&P 500 gaining 1.0 percent and the tech-heavy Nasdaq up 1.5 percent.
European markets fell, with London’s FTSE 100 ending the day down 0.6 percent. Frankfurt fell 0.5 percent and Paris shed 0.3 percent.
Analysts said investors may see the March inflation reading as a sign that the CPI had reached its peak.
“The latest US CPI numbers raised the hope that the surge in price pressures we’ve been seeing over the last 6 months might be starting to show signs of topping out,” said Michael Hewson at CMC Markets UK.
The headline 8.5 percent figure was higher than expected, the core figure which excludes volatile energy prices, came in lower than expected at 6.5 percent.
“There had been a widespread expectation that they could well have been a lot worse, and this has prompted some paring back in US yields, which in turn has supported a rebound in stock markets,” said Hewson.
The Fed last month raised interest rates by a quarter point in the first of a series of increases, and since then a chorus of officials — including Fed Chair Jerome Powell — have signalled their openness to half-point rate increases, a more aggressive measure.
– Oil prices surge –
On the oil market, meanwhile, the price of Brent North Sea crude, the international benchmark, surged 6.7 percent to $105.10 per barrel while US contract, WTI, jumped 6.9 percent to $100.77.
Prices had fallen on Monday on fears about the impact of Covid lockdowns in China, the world’s biggest crude consumer.
But they rebounded on Tuesday after OPEC said in a report lowered its demand forecast to 3.7 million barrels per day, a reduction of 500,000 barrels per day, as it said the Ukraine conflict would dent global economic growth.
Craig Erlam at OANDA said that in its report pushed back against calls by the West for it to utilise its spare capacity to replace Russian oil, saying it wasn’t possible.
“While the EU is continuing to push for higher output which would enable it to consider sanctions on Russian oil without severe economic damage at home — with current prices already causing problems — it seems it’s not going to be aided by the group that remains Russia’s ally in the OPEC+ alliance,” he wrote in a note to clients.
“With that in mind, the brief flirtation with double-digit oil may already be at an end for now,” Erlam added.
– Key figures around 1530 GMT –
New York – Dow: UP 0.8 percent at 34,566.61 points
EURO STOXX 50: DOWN 0.2 percent at 3,831.62
London – FTSE 100: DOWN 0.6 percent at 7,576.66 (close)
Paris – CAC 40: DOWN 0.3 percent at 6,537.41 (close)
Frankfurt – DAX: DOWN 0.5 percent at 14,124.95 (close)
Tokyo – Nikkei 225: DOWN 1.81 percent at 26,334.98 (close)
Hong Kong – Hang Seng Index: UP 0.52 percent at 21,319.13 (close)
Shanghai – Composite: UP 1.46 percent at 3,213.33 (close)
Brent North Sea crude: UP 6.7 percent at $105.10 per barrel
West Texas Intermediate: UP 6.9 percent at $100.77
Euro/dollar: DOWN at $1.0863 from $1.0884 late Monday
Dollar/yen: DOWN at 125.16 yen from 125.37 yen
Pound/dollar: UP at $1.3037 from $1.3030
Euro/pound: DOWN at 83.32 pence from 83.53 pence
burs-rl/ach
