Morning Chronicle - Stocks mixed as US inflation jumps to four-decade high

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Stocks mixed as US inflation jumps to four-decade high
Stocks mixed as US inflation jumps to four-decade high / Photo: Patrick T. FALLON - AFP/File

Stocks mixed as US inflation jumps to four-decade high

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.

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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.

European markets fell in afternoon deals, with London's FTSE 100 shedding 0.7 percent, Frankfurt down 0.7 percent and Paris 0.5 percent lower.

But Wall Street opened higher, with the Dow Jones Industrial Average rising 0.4 percent, the S&P 500 gaining 0.6 percent and the tech-heavy Nasdaq up by more than one percent.

Analysts said investors may see the March inflation reading as a sign that the CPI had reached its peak.

"The CPI report wasn't as bad as feared, but it most certainly wasn't good," said analyst Patrick O'Hare.

"The market for its part will take the relative good and run with it, yet there is a lingering question of how far it can go knowing it's a bad inflation situation out there and the Fed has to act aggressively to get it in order," he said.

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.

The more hawkish approach has raised concerns that it could drag the world's largest economy into recession.

"It's not really about the level of inflation anymore, as it has been well broadcast that CPI is hotter than hot," said Matt Simpson, senior market analyst at City Index.

"The big question is how long it takes to come back down and whether the Fed will tip the US into a recession in doing so."

- Oil prices surge -

On the oil market, meanwhile, the price of Brent North Sea crude, the international benchmark, surged 5.2 percent to $103.55 per barrel while US contract, WTI, won five percent to $99.04.

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 that the Ukraine conflict and ongoing effects from the pandemic would slow world economic growth.

OPEC lowered its demand forecast to 3.7 million barrels per day, a reduction of 500,000 barrels per day.

Shanghai, meanwhile, began to ease restrictions on some neighbourhoods on Monday.

- Key figures around 1335 GMT -

New York - Dow: UP 0.4 percent at 34,457.05 points

London - FTSE 100: DOWN 0.7 percent at 7,564.06

Paris - CAC 40: DOWN 0.5 percent at 6,525.76

Frankfurt - DAX: DOWN 0.7 percent at 14,092.06

EURO STOXX 50: DOWN 0.4 percent at 3,824.14

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 5.2 percent at $103.55 per barrel

West Texas Intermediate: UP 5.0 percent at $99.04

Euro/dollar: DOWN at $1.0875 from $1.0884 late Monday

Dollar/yen: DOWN at 125.17 yen from 125.37 yen

Pound/dollar: UP at $1.3046 from $1.3030

Euro/pound: DOWN at 83.37 pence from 83.53 pence