Sat. Jan 22nd, 2022

European equities fell lower on Thursday after a period of easing in the previous session, driven by US inflation data no worse than feared, gave rise to questions about how long it will take for rising price increases to moderate.

The Stoxx 600 stock meter opened 0.2 percent lower. The European index closed Wednesday’s session 0.6 percent higher in response to a 7 percent annual increase in U.S. consumer prices that investors said did not accelerate the Federal Reserve’s timetable for withdrawing its monetary stimulus from the pandemic era.

London’s FTSE 100 fell 0.1 percent after rising 0.8 percent on Wednesday.

Traders still expect the Fed, whose monetary policy decisions will affect funding costs and stock market valuations globally, to raise its main fund rate three to four times this year to around 1 percent, after being tied close to zero from March 2020.

This relatively favorable outlook for funding costs is based on estimates that US inflation, driven by recovery in energy prices and bottlenecks disrupted by coronavirus-disrupted supply chains, will soon peak.

“People like the comforting blanket of what feels like the mathematical certainty that a 7 percent inflation rate can not continue,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors.

But that has prevented investors from “asking the tough questions,” he added, about how far US inflation would fall and the possibility of the Fed raising interest rates more than markets currently expect.

“If we look at 3.5 percent inflation by the end of the year, the Fed will still have a lot of wood to cut,” he said.

“CPI was expected to be poor and therefore the ability to shock was relatively low,” added Deutsche Bank strategist Jim Reid.

“Most forecasters think the peak for inflation is coming soon, but the pace of the slippery slope is open to debate.”

Wall Street stock markets rose after inflation data before the end of Wednesday’s session with muted profits. In Asia, Hong Kong’s Hang Seng index floated 0.1 percent lower on Thursday while the Nikkei 225 in Tokyo lost 1 percent.

The yield on the 10-year US Treasury note rose by about 0.03 percentage points to 1.75 percent as the price of the benchmark government debt instrument fell.

Eurozone government bond prices have also eased in response to ongoing questions about inflation, eroding investors’ real returns on fixed-income bond income payments. Germany’s 10-year Bund yield added about 0.02 percentage points to minus 0.04 percent, while Italy’s equivalent debt yield increased by 0.03 percentage points to 1,359 percent.

The dollar index, which measures the US currency against six others, fell just under 0.3 percent after falling to its lowest point since November on Thursday morning.

Brent crude, the oil benchmark, fell 0.1 percent lower to $ 84.57 a barrel.

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