The rise in the stock market is accelerating, inflation in the UK reaches a 40-year high

LONDON, May 18 (Reuters) – Equity stocks plunged on Wednesday as concerns about the outlook for economic growth and rising inflation repelled sentiment, while a 9% UK inflation reading highlighted how much higher interest rates could be on the way.

Asian stocks managed to seek out their fourth straight rise with gains, but in Europe equities were mixed and futures on Wall Street pointed to a weaker opening,.

Many analysts have characterized this week’s sharp rise as a short-term bounce of the type common during a longer downward trend for equities. Few are willing to predict the end of the sale after the first five months of the year that have bruised for risky assets given so much macroeconomic uncertainty.

“Investor sentiment and confidence remain volatile, and as a result we are likely to see volatile and choppy markets until we have further clarity on the 3Rs – rates, recession and risk,” said Mark Haefele, Chief Investment Officer at UBS Global. Wealth management.

At 0810 GMT, the broad Euro STOXX 600 (.STOXX) was down 0.1%, while the UK’s FTSE 100 (.FTSE) was also down 0.1%.

MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) rose 0.6% and is on its longest winning streak since February. Japanese Nikkei (.N225) rose 0.94% and miners led Australian stocks (.AXJO) about 1% higher.

The MSCI World Equity Index (.MIWD00000PUS) rose 0.1% and is almost 2% higher so far this week, but is still down 16% from the top in January.

In the foreign exchange markets, sterling was the big loser, falling 0.9% to $ 1.2387 after consumer price growth in the UK reached 9% in April, a 40-year high and roughly in line with analysts’ expectations. The pound had risen sharply this week and some of Wednesday’s fall was due to profit taking.

British inflation is now the highest among the major economies, but prices are rising rapidly worldwide, forcing central banks to initiate a series of interest rate hikes even in the face of declining economic growth.

Canada’s inflation reading for April also comes later on Wednesday.

The US dollar rose 0.3% to 103.61, on its way back to its highest level in two decades last week, while the euro fell by a similar amount to 1.0515 dollars.

NEGATIVE SHOCK

Positive data had helped the short-term mood, with US retail sales meeting forecasts for a solid increase in April and industrial production beating expectations. read more

Data on Wednesday showed that Japan’s economy shrank less than expected in the first quarter. read more

Shanghai is also nearing the end of its protracted shutdown, and China’s deputy prime minister made reassuring remarks to technology leaders in the latest sign of a failing pressure. read more

However, all the good news was offset by the reminder from central bank governor Jerome Powell that controlling inflation would require rate hikes and possibly some pain. read more

Investors have priced in 50 basis points US interest rate hikes in June and July, and see that the benchmark interest rate for the Fed funds rises by 3% early next year.

US government bond yields were stable on Wednesday and during the last multi-year highs, but the German 2-year government bond yield rose to its highest level since December 2011 after several hawkish central bank comments. The European Central Bank’s Klaas Knot said on Tuesday that an interest rate increase of 50 basis points in July was possible if inflation rises.

Commodities have risen in equities this week as markets have found reasons to hold out hope for growth, even though most prices are below recent peaks.

On Wednesday, Brent oil futures rose 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 US and the eurozone, underlining the weakened outlook for the world’s largest economies.

“The global economy continues to face an unusually large number of negative shocks,” said chief economist Paul F. Gruenwald.

“Two developments have changed the macro picture,” he said, pointing to Russia’s invasion of Ukraine and inflation, which have been shown to be higher, broader and more persistent than first thought.

Additional reporting by Tom Westbrook in Singapore; Editing Kim Coghill

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