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AFP

Business

Stocks resist despite rates worries

Inflation eurozone Neel Kashkari Patrick OHare Raphael Bostic United States London US Federal Reserve

A dip in US jobless claims reinforced concerns the US Federal Reserve will raise interest rates more aggressively. ©AFP

London (AFP) - Stocks mostly resisted worries about inflation and interest rate hikes on Thursday despite officials warning on the need to keep fighting stubbornly high inflation.

European stocks finished higher even though eurozone inflation data came in worse than expected.

The eurozone annual inflation rate fell by less than expected to 8.5 percent in February, the EU's statistics agency said, while core inflation rose.

"The latest eurozone CPI report made for worrying reading today, as core inflation rose to a record high of 5.6 percent in February," said Joshua Mahony, senior market analyst at online trading platform IG.

"Today's eurozone figure provided markets with a reason to fear an end to the recent disinflation that has helped lift equity markets."

European Central Bank chief Christine Lagarde said after the data was released that more interest rate hikes might be needed in the eurozone after the half percentage point hike it has already signalled comes later this month.

Briefing.com analyst Patrick O'Hare said the sticky eurozone inflation also raised concerns about what the US Federal Reserve would do at its rate-setting meeting later this month.

A drop in US jobless claims added to those worries.

O'Hare noted that more investors are expecting a half percentage point hike, though most still expect a quarter-point hike.

"In terms of the broader market, the going concern is that policy rates and market rates are headed higher, and are apt to stay higher for longer because inflation is loitering at levels above the Fed's comfort level," he said.

There is a growing expectation that rates will top out around 5.5 percent, though some commentators are tipping six percent, from the current 4.5-4.75 percent.

The comments came as the yield on 10-year US Treasuries -- a proxy for future rates -- broke four percent for the first time since November.

"Rising bond yields will make some stocks less attractive, especially those with high valuations and/or low dividend yields," said City Index analyst Fawad Razaqzada.

Talk of more aggressive US rate hikes gave a lift to the dollar.

Federal Reserve policymakers Raphael Bostic and Neel Kashkari pointed on Wednesday to rates going higher than forecast and for an extended period.

Bostic warned that US interest rates could go well above five percent, adding that once inflation had come down to the bank's two percent target, officials should not loosen policy too soon.

Kashkari, head of the Minneapolis Fed, said he was still "open-minded" about backing a half-percentage-point hike at the next policy meeting, double the most recent increase.

"We're not yet seeing much of a sign of our interest-rate increases slowing down the services sector of the economy, and that is concerning to me," he said.

Wall Street was mixed in late morning trading, with the Dow up 0.4 percent, but both the broader S&P 500 index and the Nasdaq Composite were lower.