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Stock markets drop on fresh global inflation spikes

LONDON: Stock markets mostly retreated Thursday as fresh evidence of runaway global inflation ramped up expectations of more aggressive interest-rate hikes by central banks. Eurozone inflation will end the year at 7.6 percent, much higher than previously forecast, the EU said Thursday. The prediction comes one day after US inflation came in at a blistering 9.1 percent last month, the highest level for more than 40 years, as the Ukraine war fuelled energy prices.

Market watchers are now wondering whether the Federal Reserve could hike US borrowing costs by a full percentage point at a scheduled policy meeting this month. The central bank in June unveiled its first 75 basis-point rise in three decades and is one of dozens to hike rates. Singapore and the Philippines became the latest to tighten policy Thursday, a day after Canada, New Zealand, Chile and South Korea announced hikes.

The US inflation reading followed last week’s news of a surprise spike in jobs creation, which suggested the world’s top economy was withstanding the rate hikes, giving the Fed more room for further increases. “Stubbornly high inflation increases the risk that the (Fed) continues to hike aggressively and triggers a recession,” said Kristina Clifton at Commonwealth Bank of Australia, adding that that belief was picking up momentum on trading floors.

The European Commission on Thursday slashed growth forecasts for the eurozone, saying the consequences from the war in Ukraine were continuing to destabilise the economy. Growing fears of a global recession sent oil prices tumbling around 2.5 percent. Federated Hermes senior economist Silvia Dall’Angelo said that while commodity prices were off their recent peaks, they remained elevated amid risks of further supply shocks.

The Fed’s drive to tighten monetary policy continues to send the dollar higher, and on Wednesday it finally broke parity with the euro. The European single currency hovered just above $1 in Thursday trading. On the corporate front, JPMorgan Chase reported a drop in second-quarter profits, reflecting the impact of a weakening macroeconomic outlook that led it to set aside funds in case of bad loans.

The big US bank’s earnings came in at $8.6 billion for the quarter, down 28 percent from the year-ago period in results that missed analyst expectations. Chief Executive Jamie Dimon said key elements in the US economy remained healthy, but that macroeconomic headwinds including inflation “are very likely to have negative consequences on the global economy sometime down the road”. – AFP

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