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Concerns about rates and inflation cause global stocks to fall
Stocks fell in Europe and Asia on Friday after unexpectedly strong reports on the US economy raised the possibility of interest rates remaining painfully high.
US futures rose while oil prices fell.
In early European trading, Germany’s DAX lost 0.6% to 18,638.00, while the CAC 40 in Paris gave up 0.4% to 8,071.23. Britain’s FTSE 100 fell 0.5% to 8,301.27.
S&P 500 and Dow Jones Industrial Average futures rose 0.1%.
Japan’s Nikkei 225 index lost 1.2% to 38,646.11 after the government reported that core inflation, excluding volatile food and energy prices, was at 2.2% in April, lower than forecast . Analysts said this suggested less pressure on the Bank of Japan to raise interest rates.
“In fact, in seasonally adjusted terms, consumer prices, excluding fresh food and energy, have remained stable for two consecutive months. This means it won’t be long before inflation, excluding fresh food and energy, falls below the Bank of Japan’s 2% target,” said Marcel Thieliant of Capital Economics in a commentary.
He said it was unlikely the central bank would be able to raise its key rate, much more after raising it to a range of zero to 0.1%, up from -0.1% in March.
In Hong Kong, the Hang Seng fell 1.5% to 18,590.33, while the Shanghai Composite index fell 0.9% to 3,088.87.
The rally in property stocks following the announcement of new measures to support the struggling industry proved short-lived, as market players question whether it will be enough to end a protracted crisis in the housing sector.
Shares of China Vanke, a major property developer, fell 6%, as did Hong Kong-traded shares of Shimao Group Holdings, another major property company. Agile Group’s holdings plummeted 8%.
South Korea’s Kospi fell 1.3% to 2,687.60, while in Australia, the S&P/ASX 200 fell 1.1% to 7,727.60.
Taiwan’s Taiex fell 0.2% after hitting a record high on Thursday.
On Thursday, most US stocks fell as strong economic reports fueled concern that the Federal Reserve might keep interest rates high to ensure it had a handle on inflation. The weakness was widespread and overshadowed another explosive profit report from Nvidia, a heavyweight on the market.
The S&P 500 fell 0.7%, its sharpest drop since April. The Dow Jones Industrial Average fell 1.5% and the Nasdaq index fell 0.4%.
A report suggested that business activity growth in the US is reaching the fastest pace in more than two years. S&P Global said its preliminary data showed that growth improved for companies not just in the services sector but also in manufacturing.
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A separate report showed that the US job market remains solid despite high interest rates. Fewer workers filed for unemployment benefits last week than economists expected, an indication that layoffs remain low.
The Fed is trying to accomplish the difficult feat of slowing the economy enough through high rates to get inflation back to 2%, but not so much that it forces a painful recession. To do so, it has kept its key interest rate at the highest level in more than two decades, and Wall Street is eager for some easing.
The sharpest drop in the S&P 500 came from Nation’s live entertainmentwhich fell 7.8% after the Justice Department accused the company and its Ticketmaster business of running an illegal monopoly on live events in the country.
In other trading Friday morning, benchmark U.S. crude fell 19 cents to $76.68 per barrel in electronic trading on the New York Mercantile Exchange. Made 30 cents on Thursday.
Brent crude, the international standard, fell 15 cents to $81.21 per barrel.
The US dollar rose to 157.04 Japanese yen from 156.96. The euro rose to $1.0824 from $1.0817.