Stocks rebound fades and dollar gains as growth fears return

LONDON, May 18 (Reuters) – A rebound in equities petered out on Wednesday as concerns over the outlook for economic growth and rising inflation rattled sentiment, while a British inflation reading of 9 % highlighted just how much interest rates could rise.

European stocks were mostly lower and futures on Wall Street pointed to a weaker open.

Many analysts have characterized this week’s strong rally as a short-term rebound of the common sort during a longer downtrend for equities. Few are prepared to predict an end to selling after a lethal first five months of the year for risky assets given so much macro uncertainty.

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“Investor sentiment and confidence remain fragile 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,” said Mark Haefele, managing director. investments at UBS Global. Wealth management.

As of 11:15 GMT, the broad Euro STOXX 600 index (.STOXX) was down 0.35%, while Britain’s FTSE 100 (.FTSE) was down 0.23%.

MSCI’s broadest Asia Pacific non-Japan equity index (.MIAPJ0000PUS) rose 0.68% and is off to its longest winning streak since February. The Japanese Nikkei (.N225) rose 0.94% and miners led Australian stocks (.AXJO) around 1% higher.

The MSCI World Equity Index (.MIWD00000PUS) edged up 0.1% and is up nearly 2% so far this week, but remains down 16% from its January peak.

MSCI Global Equity Index

In the currency markets, the pound was the big loser, losing as much as 1% to $1.2373 after UK consumer price inflation hit 9% in April, a record high in 40 years old and roughly 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 major economies, but prices are rising rapidly around the world, forcing central banks to raise rates even in the face of slowing economic growth.

Canada’s April inflation reading is also due later Wednesday.

The US dollar rose 0.3% to 103.62 after a sharp fall on Thursday and returned to its two-decade high hit last week, while the euro fell a similar amount to $1.0513. .

NEGATIVE SHOCKS

Positive data helped the mood this week, with US retail sales meeting expectations of a solid increase in April and industrial production beating expectations. Read more

Data on Wednesday showed Japan’s economy contracted less than expected in the first quarter. Read more

Shanghai is nearing the end of its prolonged lockdown and China’s vice premier has made soothing comments to tech executives in the latest sign of less pressure. Read more

However, the good news was offset by a reminder from Federal Reserve Chairman Jerome Powell that controlling inflation would require rate hikes and possibly pain. Read more

Investors have been anticipating 50 basis point hikes in US rates in June and July and see the benchmark federal funds rate falling 3% early next year.

US Treasury yields were flat on Wednesday 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 the central bank. Klaas Knot of the European Central Bank said on Tuesday that a 50 basis point rate hike in July was possible if inflation rose.

Commodities rebounded along with stocks this week, although most prices are below recent highs.

On Wednesday, Brent crude futures gained 0.85% to $112.88 a barrel and US crude futures rose 1.19% to $113.74 a barrel.

S&P Global Ratings has lowered its growth forecasts for China, the United States and the euro zone, pointing to a weakening outlook for major world economies.

“Two developments have changed the macroeconomic picture,” chief economist Paul F. Gruenwald said, pointing to Russia’s invasion of Ukraine and inflation, which turned out to be higher, wider and higher. persistent than initially thought.

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Additional reporting by Tom Westbrook in Singapore; Editing by Kim Coghill, William Maclean

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