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Stocks, oil drop on fresh inflation spikes

Electronic quotation boards display the yen's rate of 138 against the US dollar at a foreign exchange brokerage in Tokyo on Thursday.- AFP
Electronic quotation boards display the yen's rate of 138 against the US dollar at a foreign exchange brokerage in Tokyo on Thursday.- AFP

LONDON/HONG KONG: Stock markets mostly retreated on 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 per cent, much higher than previously forecast, the EU said on Thursday.


The prediction comes one day after US inflation came in at a blistering 9.1 per cent 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 on 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 per cent.


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 per cent 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".


ASIAN MARKETS SWING


Asian markets were mixed on Thursday as another forecast-busting US inflation print ramped up bets on a series of sharp interest rate hikes by the Federal Reserve, and other central banks race to tighten monetary policy.


Federated Hermes senior economist Silvia Dall'Angelo said the reading suggested "inflation will likely remain sticky at elevated levels for the balance of the year, as external and domestic price pressures continue to pass through to consumer prices".


She added that while commodity prices were off their recent peaks, they were still elevated and were at risk of further supply shocks.


With the jobs market still strong and inflation resiliently high, "the Fed will likely resort to hawkish rhetoric and further front-loading of tightening at least until late autumn, as it fights to maintain its credibility", she said.


In Asian trade, Tokyo, Sydney, Wellington, Taipei and Jakarta all rose but Hong Kong, Shanghai, Singapore, Seoul, Mumbai, Bangkok and Manila down.


London, Paris and Frankfurt opened lower.


"The more prolonged inflation remains high, the more central banks will need to tighten, and the slower growth will become," said SPI Asset Management's Stephen Innes.


But while there is a general sense of gloom, eToro global markets strategist Ben Laidler said there were some "glimmers of hope" in the CPI data. -- AFP


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