Asia & Europe Stocks Slump & US Attempts Rebound

London, Feb 26 (AFP/APP): Asian and European stocks slumped Friday due to concerns over the prospect of high inflation and interest-rate rises that could hamper economic recovery from the coronavirus pandemic, but US stocks attempted to rebound after tame inflation data.

The dollar rose against its main rivals ahead of Congress later Friday voting on US President Joe Biden’s enormous $1.9-trillion economic rescue package. Oil prices fell after striking 13-month peaks Thursday on keen demand. Vaccine rollouts, slowing Covid infection rates and Biden’s stimulus package are proving to be a double-edged sword for traders as they weigh the much-needed return to pre-pandemic life with the prospect that prices could rise, possibly sharply.

There is a worry that surging inflation could threaten one of the key pillars of the rally on world markets from their March nadir — record-low borrowing costs. Alarm bells have been ringing for weeks as the yield on benchmark 10-year US Treasuries climbed to one-year highs as investors moved out of the safe haven of government bonds.

“Yields have been rising for some time but have clearly accelerated recently and investors are nervous about the prospect of higher inflation and less central bank support,” Craig Erlam, market analyst at Oanda trading group, told AFP.

Yields have advanced around the world, from New Zealand and Australia to France, Germany and Japan. Soaring US bond yields sparked a hefty overnight sell-off on Wall Street — led by the tech-heavy Nasdaq’s 3.5 percent plunge. Asia followed suit on Friday, suffering one of its worst sessions since the dark days of last March’s collapse. Tokyo led the way, tanking four percent, while Hong Kong, Mumbai and Taipei were all more than three percent off and Seoul shed 2.8 percent.

Sydney and Shanghai also lost more than two percent. In Europe, London, Paris and Frankfurt all tumbled more than one percent at the open, with losses in London deepening. But Wall Street attempted to rebound at the open on Friday after data showed inflation remained tame in January, with a 0.3 percent month-on-month gain and a 1.5 percent rise over a year, even as incomes rose as many Americans received stimulus payments.

The Dow opened flat, but the S&P 500 rose 0.4 percent and the Nasdaq Composite climbed 0.9 percent. Briefing.com analyst Patrick J. O’Hare said one of the key takeaways of the data report was that “aggregate inflation pressures were still tame in January”.

Furthermore, “the income, spending, and savings data corroborate the stock market’s hopeful economic outlook,” he added.

Powell reassurance

The global sell-off came despite reassurances from Federal Reserve chief Jerome Powell that US interest rates will not rise for the foreseeable future.

“Investors are clearly spooked despite the best efforts of Jerome Powell,” Erlam said. “Policymakers may be comfortable with yields rising as it reflects the view that the economy is heading for a powerful recovery, but investors are less enthusiastic,” he added.

On the corporate front and at the end of another busy earnings week, shares in European airlines giant IAG rallied 4.4 percent despite the owner of British Airways and Iberia diving into a record 6.9-billion-euro loss on Covid fallout. Analysts said the worst could be over for the battered aviation sector.