Global stock markets stumble on inflation and growth worries

US and European stocks mostly fell on Friday as inflation and growth fears pulled the rug out from under a rally driven by hopes of an easing in tensions between the US and China.

News that the heads of the world’s two biggest economies, US President Joe Biden and Chinese leader Xi Jinping, talked for the first time in seven months sent Asian stocks fizzing higher.

German Chancellor Angela Merkel on Thursday visited the plant of Knauer, a manufacturer of laboratory instruments in Berlin.

European and US stocks initially followed suit but later fell back on worries about inflation and the continued impact of the pandemic on economic recovery.

News that the UK economic recovery slowed sharply in July, growing by just 0.1 per cent as rising Covid cases and supply shortages offset the end of lockdown curbs, dampened sentiment.

The retreat in share prices “suggest that there is increasing anxiety amongst investors over the growth outlook, as well as the effect that continued increases in prices, and supply chain disruption, could well have on spending patterns, as well as wages,” said Michael Hewson, chief market analsyt at CMC Markets UK.

London nevertheless ended the day with a small gain of less than 0.1 per cent thanks to gains by commodities firms which profited from hopes for a calm in trade tensions between China and the US. Oil prices also got a boost from the Biden-Xi talks, shooting up 2.0 per cent.

Paris stocks shed 0.3 per cent and Frankfurt gave up less than 0.1 per cent.

As for the United States, it was data showing that producer prices rises hit a record 8.3 per cent in August that unnerved investors.

Consumer price inflation data is due out next week, and Hewson said “it would be rather odd if some of these price rises didn’t start to trickle down into the headline CPI rate in next week’s numbers.” He added rising prices may also help explain why consumer confidence has started to slide back, with means that retail sales data next week will be scrutinised by investors as an indicator of consumer sentiment.

US stocks were lower in late morning trade, with the Dow down 0.4 per cent.

Oil rises to around $73 a barrel: Oil rose to around $73 a barrel on Friday, supported by growing signs of supply tightness in the United States as a result of Hurricane Ida and as US-China trade hopes gave riskier assets a boost.

About three quarters of the US Gulf’s offshore oil production, or about 1.4 million barrels per day, has remained halted since late August.

“With the restart in offshore crude production lagging, the odds are that the Ida effect will still be felt in the coming weeks,” said Stephen Brennock of oil broker PVM.

Brent crude rose $1.57, or 2.2%, to $73.02 by 1330 GMT. US West Texas Intermediate (WTI) crude added $1.58, or 2.3%, to $69.72.

Oil and equity markets also got a boost from news of a call between US President Joe Biden and his Chinese counterpart Xi Jinping. The call raised hopes for warmer relations and more global trade, analysts said.

“The Biden-Xi phone call has had the same effect on oil markets as it has on other asset classes,” said Jeffrey Halley, analyst at brokerage OANDA.

Brent was on track to end the week with a small gain and has rallied 41% this year, driven by supply cuts by the Organization of the Petroleum Exporting Countries and some demand recovery from the pandemic.

On Thursday, both crude contracts had fallen more than 1% after China said it would release crude oil reserves via public auction to help ease high feedstock costs for refiners, a move described as a first.

Gold held a tight range on Friday, as uncertainty over the US Federal Reserve’s tapering timeline kept most investors on the sidelines.

But overall gains in the dollar this week put bullion on course to mark its first weekly decline in five.

Spot Gold was last up 0.04% at $1,795.40 per ounce by 1523 GMT, while US Gold futures fell 0.2% to $1,796.30.

Bart Melek, head of commodity strategies at TD Securities, said a bounce in US yields were preventing speculative funds from convincingly moving into Gold.

The benchmark US 10-year Treasury yield rose after economic data indicated high inflation could persist for some time.

While Gold is considered a hedge against inflation, higher yields translate into higher opportunity cost of holding non-interest bearing bullion.

“The elevated US producer price index data could on margin drive people to believe that the Fed could show slightly less accommodation down the road with tapering,” Melek added.

Gold investors closely monitor the Fed’s decisions, since non-yielding bullion tends to gain when interest rates are low.

Many Gold market participants are waiting on the sidelines in part due to the uncertainty surrounding the Fed’s tapering timeline, said Commerzbank analyst Daniel Briesemann.