Asian equities managed to achieve their fourth straight bull run, but in Europe equities were mixed and Wall Exchange futures pointed to a weaker open.
Many analysts have characterized this week’s sharp rise as a short-term bounce of the type often seen during a longer bear trend for stocks. Few of them are ready to predict the end of sales after a trying first five years for risky assets, given the macroeconomic uncertainty.
“Investor sentiment and confidence remain shaken, and as a result we are likely to see volatile and choppy markets until we get more clarity on the 3Rs — rates, recession and risk,” Mark said. Haefele, Head of Investments at UBS Global Wealth Management.
As of 8:10 GMT, the broad Euro STOXX 600 index was down 0.1%, while Britain’s FTSE 100 was also down 0.1%.
MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 0.6% and is on its longest winning streak since February. The Japanese Nikkei rose 0.94% and mining led Australian stocks up around 1%.
In the currency market, the pound sterling was the big loser, losing 0.9% to $1.2387 after UK consumer price inflation hit 9% in April, a 40-year high and more or less in line with analysts’ expectations. The pound had risen sharply this week and part of Wednesday’s fall was due to profit taking.
UK inflation is now the highest among the major economies, but prices are rising rapidly around the world, forcing central banks to launch a series of rate hikes even in the face of slowing economic growth.
Canada’s April inflation reading is also due later on Wednesday.
The US dollar rose 0.3% to 103.61, closing in on its two-decade high hit last week, while the euro fell a similar amount to $1.0515.
NEGATIVE SHOCKS
Positive data had helped short-term sentiment, with US retail sales meeting expectations of a solid increase in April and industrial production beating expectations.
Wednesday’s data showed Japan’s economy contracted less than expected in the first quarter.
Shanghai is also nearing the end of its protracted lockdown and China’s vice premier has made soothing comments to tech executives in the latest sign of the pressure easing.
However, all of the good news was offset by Federal Reserve Chairman Jerome Powell’s reminder that controlling inflation would require rate hikes and possibly some pain.
Investors have forecast rate hikes of 50 basis points in the US in June and July, and the benchmark federal funds rate is expected to hit 3% early next year.
US Treasury yields remained flat on Wednesday and below recent multi-year highs, but the yield on German 2-year government bonds rose to its highest level since December 2011 after more hawkish comments from central bankers. Klaas Knot of the European Central Bank said on Tuesday that a 50 basis point rate hike in July was possible if inflation becomes more widespread.
Commodities rallied along with equities this week as markets found reason to hold on to growth hopes, although most prices were below recent highs.
On Wednesday, Brent crude oil futures gained 1.3% to $113.38 a barrel and US crude oil futures rose 1.64% to $114.24 a barrel.
S&P Global Ratings cut growth forecasts for China, the United States and the euro zone, pointing to a weakening outlook for major world economies.
“The global economy continues to face an unusually large number of negative shocks,” said chief economist Paul F. Gruenwald.
“Two events have changed the macroeconomic picture,” he added, referring to Russia’s invasion of Ukraine and inflation, which turned out to be higher, wider and more persistent than expected.