Title : Shares struggle after hot UK inflation, New Zealand rate hike

Aug 17, 2022 09:51AM ET

By:AnalysisWatch

Global stocks suffered and oil prices fell on Wednesday as the highest inflation recorded in the U.K. since 1982 and rising interest rates in New Zealand reminded investors of the challenges facing the global economy.

The MSCI benchmark index for world stocks moved away from early highs and was little changed by 1055 GMT, indicating that the rebound that began in July is running out of steam.

European stocks fell 0.3%, while the broader MSCI index of Asia-Pacific shares outside Japan added 0.1%, from early highs.

S&P 500 futures were down 0.7% on Wednesday, following strong gains on Tuesday on better-than-expected results from Walmart (NYSE: WMT) and Home Depot (NYSE: HD), which bolstered optimistic views on consumer health.

However, a larger-than-expected rise in Britain's consumer price inflation to 10.1% in July highlighted growing pressures on households and helped to cement expectations of a further 50 basis point (bps) rate hike at the Bank of England's next meeting.

After an initial rally on the data, sterling trimmed some gains and was little changed against the dollar, while U.K. two-year bond yields rose to their highest level in nearly 14 years.

On the other hand, rising prices pose a clear downside risk to economic activity and raise the possibility of a potentially prolonged recession in the UK, which is clearly bearish for the pound. "

Many U.K. two-year yields, which are sensitive to rising rate expectations, rose above 10-year yields, marking a yield curve inversion that many investors say is a harbinger of a major economic slowdown.

New Zealand stocks were flat. After an initial rally, the New Zealand dollar turned negative after the country's central bank announced a fourth consecutive 50 basis point interest rate hike, showing no signs of slowing.

In currency markets, the dollar index gained 0.1% to 106.59 ahead of the release of the minutes of the Federal Reserve's latest meeting, which investors will scrutinize for further clues on its monetary policy tightening outlook.