Markets fret over soaring inflation, energy crunch

World stock markets wavered Tuesday as investors fretted over a brewing energy crisis, soaring inflation, signs of a slowdown in the global economy and an end to central bank financial support.

In afternoon trading in Europe, stock prices were all lower in London, Frankfurt and Paris while Asian markets closed down.

But on the other side of the Atlantic, Wall Street was in positive territory.

“Clearly, there’s plenty of uncertainty in the markets that’s been a drag on sentiment over the last couple of months but equally, investors are not conceding defeat easily,” said OANDA analyst Craig Erlam.

The expert said that a lack of alternatives meant that investors would continue to place their money in equity markets.

Nevertheless, that was “hardly a healthy reason,” he cautioned.

“But as we’ve learned over the last decade or so, no matter how hard it can be to justify the apparently inflated levels in stock markets at times, or how long and severe the list of downside risks become, we never seem to be far away from a record high.”

All eyes are on the release this week of inflation data in the United States and China, where expectations are for high readings that will add pressure on central banks to tighten monetary policy.

The Federal Reserve has already signalled it will begin winding down its vast bond-buying programme by the end of the year as it looks to prevent prices from running out of control and the economy from overheating.

While the move has been widely expected for some time, consistently high inflation is increasing the likelihood that interest rates will rise as early as next year.

The Bank of England appears close to lifting borrowing costs sooner rather than later, while New Zealand and South Korea have already done so.

The pressure to act comes as energy prices hit multi-year or record highs and demand picks up ahead of the northern hemisphere winter, while supplies are limited as a result of pandemic lockdowns.

The issue is hitting countries around the world and increasing worries of a worldwide fuel squeeze, with US oil prices hitting a seven-year peak and Chinese coal prices also hitting a new record.

“The energy crisis is showing no signs of abating, which means considerable cost pressures on companies, and consumers facing the prospect of having less money in their pocket,” said AJ Bell investment director Russ Mould.

China’s ongoing crackdown on the private sector and the debt woes of the country’s property giant Evergrande also dampened investor sentiment in Asia.

Hong Kong, Shanghai, Tokyo, Sydney, Seoul, Singapore, Taipei, Mumbai, Manila and Wellington all finished in negative territory.

Investors are also awaiting the beginning of the corporate earnings season, which gets under way this week with US banks.

– Key figures around 1345 GMT –

New York – Dow: UP 0.1 percent at 34,545.27 points

London – FTSE 100: DOWN 0.5 percent at 7,114.29

Frankfurt – DAX: DOWN 0.3 percent at 15,156.64

Paris – CAC 40: DOWN 0.6 percent at 6,532.01

EURO STOXX 50: DOWN 0.4 percent at 4,054.92

Tokyo – Nikkei 225: DOWN 0.9 percent at 28,230.61 (close)

Hong Kong – Hang Seng Index: DOWN 1.4 percent at 24,962.59 (close)

Shanghai – Composite: DOWN 1.3 percent at 3,546.94 (close)

Euro/dollar: DOWN at $1.1544 from $1.1552 at 2100 GMT

Pound/dollar: UP at 1.3597 from $1.3595

Euro/pound: DOWN at 84.90 from 84.97 pence

Dollar/yen: UP at 113.49 yen from 113.31 yen

Brent North Sea crude: UP 0.5 percent at $84.08 per barrel

West Texas Intermediate: UP 1.0 percent at $81.35 per barrel