Global shares fall on inflation, central bank moves By Reuters3 min read

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© Reuters. FILE PHOTO: A customer hands over Russian rouble banknotes and coins to a vendor at a market in Omsk, Russia February 18, 2022. REUTERS/Alexey Malgavko

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By Elizabeth Dilts Marshall

NEW YORK (Reuters) – Global share markets slid on Thursday as U.S. inflation hit almost 8%, making it almost certain the U.S. Federal Reserve will raise interest rates next week, and the European Central Bank sped up the end of its massive stimulus program.

Data showed U.S. consumer inflation running at a 7.9% annualized clip in February, the largest annual increase in 40 years. Wall Street fell on the data, giving up some of the gains notched in the prior session’s relief rally.

The ECB said it will stop pumping money into financial markets this summer, paving the way for an increase in interest rates as soaring inflation outweighs concerns about the fallout from Russia’s invasion of Ukraine.

Talks between Ukraine and Russia on Thursday failed to bring any respite in the conflict, which has trapped hundreds of thousands of civilians in Ukrainian cities sheltering amid Russian air raids and shelling.

The euro retreated from overnight gains following the ECB announcement, and the dollar strengthened on the U.S. inflation report.

Marissa Brown, managing director of applied research at Qontigo, said that some inflation can be beneficial to stock prices, but central banks have their work cut out for them managing inflation that is at multi-decade highs.

“We’ve reached that tipping point between good inflation and bad inflation. It is driving volatility higher, and the higher volatility typically drives away investors,” Brown said.

“Sentiment is therefore very uncertain. Now that we are where we are, can (central bankers) tread that fine line between managing inflation and not pushing us into recession?”

MSCI’s gauge of stocks across the globe shed 0.34% at 3:13 p.m. EST (2013 GMT).

The fell 182.71 points, or 0.55%, to 33,103.54, the lost 26.26 points, or 0.61%, to 4,251.62 and the dropped 143.49 points, or 1.08%, to 13,112.06.

The pan-European index lost 1.69%.

The rose 0.534%, with the euro down 0.81% to $1.0985 after its strongest day a session earlier in almost six years.

Veneta Dimitrova, senior U.S. economist at Ned Davis Research, said that with the sharp rises in energy and other commodity markets due to the war in Ukraine, it will most likely take longer to reach peak inflation.

“This means higher inflation for longer and a treacherous policy path for the Fed ahead,” Dimitrova, adding she expects the Fed to proceed with a 25 basis point interest rate increase next week.

“With all the geopolitical uncertainty and market volatility out there, the Fed doesn’t want to add to the uncertainty.”

Oil fell in volatile trading after the United Arab Emirates backtracked on statements saying OPEC and its allies might increase output to help to plug the gap in exports from Russia. [O/R]

oil futures settled at $1.06.02 a barrel, down 2.47%, while the international benchmark settled at $109.33, down 1.63%.

European Union leaders will phase out buying Russian oil, gas and coal, a draft declaration showed on Thursday, as the bloc seeks to reduce its reliance on Russian sources of energy, following a ban from the United States.

Other riskier assets such as cryptocurrencies also fell, with bitcoin down 6.5%.

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