World markets advance despite US inflation woes

US and European stocks mostly advanced Wednesday despite data that showed US inflation slowed down less than investors had been expecting.

Soaring inflation and the hiking of interest rates by central banks in response has been one of the reasons why stocks have taken a beating so far this year as both tend to tamp down economic activity.

Investors had been eagerly awaiting the US consumer price index data for April, hoping it would show inflation had reached a peak in March.

That was indeed the case as the CPI rose by 8.3 per cent in April on an annual basis, down from the 8.5 percent gain registered in March.

But experts and investors had expected a larger drop.

Briefing.com analyst Patrick J. O’Hare said the 0.3 per cent month-on-month gain in the overall CPI was above the consensus expectation of 0.2 percent.

The 0.6 jump in monthly core CPI, which excludes food and energy costs, was also above the consensus of 0.4 percent.

“The key takeaway from the report is that it provided some leeway that suggests peak inflation might have been hit, but with the moderation not as significant as had been hoped, it also stirred concerns that inflation might stick at persistently high levels longer than anyone would like, including the Fed,” said O’Hare.

Market analyst Michael Hewson at CMC Markets UK said concerns about more persistent inflation weighed on the tech-heavy Nasdaq, which remained in the red in late morning trading.

But both the Dow and S&P recovered from early losses to trade in the green.

European stocks rallied, with London rising 1.4 per cent.

Both Frankfurt and Paris stocks jumped more than two percent although the ECB signalled for the first time that its first hike in interest rates from historic lows may come as soon as July.

Ahead of the inflation number, equities also won a boost from US President Joe Biden’s administration looking at possibly lifting trade tariffs on China to try and control inflation.

Equities have been on another roller-coaster ride this week amid high inflation concerns, Russia’s invasion of Ukraine and the impact of China’s Covid-19 lockdowns on supply chains.

Global investors have been spooked by China’s sinking April exports -- the lowest in almost two years -- as well as data showing its consumer inflation had risen at the quickest pace in nearly half a year.

Meanwhile global oil prices rose around 5 percent.

“Oil prices have remained choppy with prices rebounding strongly today from two-week lows as uncertainty remains about the timing of an EU ban on Russian oil imports,” said Hewson at CMC Markets.

On the corporate front Wednesday, Marlboro-maker Philip Morris International said it had offered $16 billion to acquire smokeless tobacco company Swedish Match as the US group aims to move away from its traditional cigarette business.

The board of Swedish Match recommended that its shareholders accept the bid of 106 Swedish kronor per share, nearly 40 percent above its closing share price Monday, the companies said. The deal would total 161.2 billion Swedish kronor (15 billion euros).

Philip Morris shares rose 3.7 percent in morning trading in New York.

Britain’s FTSE 100 ended higher on Wednesday as energy and mining shares rallied on the back of higher commodity prices and Compass Group posted a strong earnings report.

The blue-chip FTSE 100 closed 1.4% higher to record its best session in more than a month while the domestically focused mid-cap index also advanced 1.4%.

Miners climbed 3.9% as metal prices rose on signs of lower domestic COVID-19 infections in China.

Oil majors Shell and BP rose nearly 3.7%, each tracking a recovery in crude prices on supply concerns and expectations that Beijing would provide more economic stimulus after China’s factory-gate inflation eased.

Compass Group jumped 7.4% to the top of the index, after the catering company raised its annual revenue forecast and announced a 500 million pound ($616.65 million) share buyback following a strong first half.

“A lot of corporates so far have been pretty successful in passing on the higher costs to consumers and we’ve seen UK stocks being relatively attractive because they are relatively cheap and you’re still earning a decent return,” said Stuart Cole, head macro economist at Equiti Capital.

Agencies