US stocks reverse course and end lower as rising oil prices stoke inflation fears

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Wall Street stocks shed earlier gains after a sharp rise in oil prices helped rekindle inflation concerns, even after a crucial piece of US inflation data came to light. came out lower than expected.

The S&P 500 ended the day down 0.3%, after rising as much as 1.3% earlier on Tuesday. The tech-heavy Nasdaq Composite also fell 0.3%.

Oil prices jumped more than 6%, undermining an initially positive reaction to new US inflation data released on Tuesday morning.

Stripping out price gains in volatile items such as food and energy, the “core” U.S. consumer price index rose 0.3% month-on-month, in fell short of forecasts of 0.5% by economists polled by Reuters.

However, consumer prices rose 8.5% year-on-year in March from 7.9% in February, the Bureau of Labor Statistics said, marking the fastest annual rise since 1981.

Lower core inflation initially provided relief to investors, who feared that an inflation overshoot would put pressure on the US Federal Reserve to tame price growth by rapidly raising prices. interest rates, the prospect of which has destabilized global markets in recent months.

Jim Paulsen, chief investment strategist at The Leuthold Group, said underlying inflation “much lower” than expected should not, however, derail the Fed’s plans to aggressively raise interest rates during of its next meeting in May.

Last month, the Fed raised its benchmark interest rate by a quarter of a percentage point, bringing the target range from 0.25% to 0.50%, in its first increase since 2018.

In government debt markets, the yield on the 10-year US Treasury note, which underpins global borrowing costs, fell 0.06 percentage points to 2.72%. The yield on the two-year note, which closely tracks interest rate expectations, fell further, indicating that investors recalibrated their expectations for higher interest rates following the data release.

The yield on the 10-year German Bund, an indicator of European borrowing costs, fell 0.03 percentage points to 0.79%. The yield on the government note was around minus 0.12% at the start of the year.

German investor confidence, as measured by research institute Zew’s economic sentiment index, has fallen to its lowest level since the first month of the coronavirus pandemic.

Elsewhere in the stock markets, the European Stoxx 600 index fell 0.4%, the German Dax fell 0.5% and the French Cac 40 fell 0.3%. London’s FTSE 100 fell 0.5%. Shares of European banks were among the worst performers, with shares of German lenders Deutsche Bank and Commerzbank down more than 9% and 8% respectively.

Andrew McCaffery, global chief investment officer at Fidelity International, said he was “particularly cautious” on European stocks and the euro given the “likelihood” of a recession.

In Asia, Hong Kong’s Hang Seng Index closed up 0.5% and China’s CSI 300 gained 1.9%. The Japanese Topix lost 1.4% and the South Korean Kospi fell 1%.

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