LONDON (AFP/APP): European stock markets steadied Wednesday after the previous session’s slump thanks to upbeat regional growth data.
It comes ahead of key US inflation data later in the day as investors worry that rising prices will harm the global economy’s recovery from the pandemic.
London’s benchmark FTSE 100 index was up 0.4 percent in midday deals, having lost 2.5 percent Tuesday on surging inflation fears that continued to trouble most Asian equity markets Wednesday.
Taipei’s tech-rich bourse tumbled more than eight percent at one point as inflation concerns were compounded by news that Taiwan was imposing strict containment measures including the banning of large gatherings over a cluster of local infections.
The index pared a lot of the losses but still finished down 4.1 percent.
In foreign exchange, the dollar was higher against its main rivals, winning support from the prospect of tighter US interest rates sooner than expected because of high inflation.
Meanwhile in Europe, “economic recovery optimism is overshadowing concerns of runaway inflation and helping… stocks pare some of the deep losses from the previous session”, noted Sophie Griffiths, market analyst at Oanda trading group.
The EU on Wednesday sharply revised its growth forecasts for this year and next, saying an accelerated vaccination drive and the bloc’s landmark recovery plan would lift Europe out of recession.
Britain’s economy meanwhile began to recover strongly at the end of the first quarter despite lockdown restrictions, according to official data.
Global equities had a torrid start to the week as traders bet that stimulus measures, the rollout of vaccines and the reopening of businesses will fan a blockbuster recovery in the world economy but bring with it an explosion of spending that will push costs through the roof and prompt central banks to raise interest rates.
Strategists said that while markets were undergoing some turbulence, that was to be expected after a more than one-year rally and with valuations considered high, while the outlook remained upbeat owing to the economic recovery.
But with a range of commodities including copper, iron ore and lumber all surging to records or multi-year highs, those concerns are increasing while observers said rising demand for employees is also pushing up wage costs, adding upward pressure to prices.
In a reminder that the global recovery from the pandemic remains fragile, oil demand dropped last month as the coronavirus surged in India and elsewhere, the International Energy Agency said Wednesday.
Meanwhile the unease on trading floors comes despite repeated Fed insistence that while it sees inflation spiking owing to the recovery and the low base of comparison last year, officials will not make any policy adjustments such as lifting interest rates yet.
The US central bank’s position is that it will not move until it is happy unemployment is under control and inflation is running hot for an extended period.
Tech firms — which boomed last year as people were forced to stay home — have been at the forefront of the sell-off as they are considered susceptible to higher borrowing costs owing to the potential effect on their future earnings and cash flow.