European stocks pull back after sharp global losses

The main entrance at London Stock Exchange Photo: Chris J Ratcliffe/Getty Images

European stock markets pulled back Friday after sharp losses in Asia overnight due to concerns over

the prospect of high inflation and interest-rate rises that could hamper economic recovery from the coronavirus pandemic.

The dollar rose against its main rivals ahead of Congress later Friday voting on US President Joe Biden’s enormous $1.9-trillion economic rescue package.

Oil prices fell after striking 13-month peaks Thursday on keen demand.

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Vaccine rollouts, slowing Covid infection rates and Biden’s stimulus package are proving to be a double-edged sword for traders as they weigh the much-needed return to pre-pandemic life with the prospect that prices could rise, possibly sharply.

There is a worry that surging inflation could threaten one of the key pillars of the rally on world markets from their March nadir — record-low borrowing costs.

Alarm bells have been ringing for weeks as the yield on benchmark 10-year US Treasuries climbed to one-year highs as investors moved out of the safehaven government bond.

“Yields have been rising for some time but have clearly accelerated recently and investors are nervous about the prospect of higher inflation and less central bank support,” Craig Erlam, market analyst at Oanda trading group, told AFP.

Yields have advanced around the world, from New Zealand and Australia to France, Germany and Japan.

Soaring US bond yields sparked a hefty overnight sell-off on Wall Street — led by the tech-heavy Nasdaq’s 3.5 percent plunge.

Asia followed suit on Friday, suffering one of its worst sessions since the dark days of last March’s collapse.

Tokyo led the way, tanking four percent, while Hong Kong, Mumbai and Taipei were more than three percent off and Seoul shed 2.8 percent.

Sydney and Shanghai also lost more than two percent.

In Europe, London, Paris and Frankfurt all tumbled more than one percent at the open, before trimming losses.

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Powell reassurance
The global sell-off comes despite reassurances from Federal Reserve chief Jerome Powell that US interest rates will not rise for the foreseeable future.

“Investors are clearly spooked despite the best efforts of Jerome Powell,” Erlam said.

“Policymakers may be comfortable with yields rising as it reflects the view that the economy is heading for a powerful recovery, but investors are less enthusiastic,” he added.

On the corporate front and at the end of another busy earnings week, shares in European airlines giant IAG rallied four percent despite the owner of British Airways and Iberia diving into a record 6.9-billion-euro loss on Covid fallout.

Analysts said the worst could be over for the battered aviation sector.

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– Key figures around 1110 GMT –
London – FTSE 100: DOWN 0.4 percent at 6,625.38 points

Frankfurt – DAX 30: DOWN 0.1 percent at 13,861.64

Paris – CAC 40: DOWN 0.3 percent at 5,765.63

EURO STOXX 50: DOWN 0.4 percent at 3,671.84

Tokyo – Nikkei 225: DOWN 4.0 percent at 28,966.01 (close)

Hong Kong – Hang Seng: DOWN 3.6 percent at 28.980.21 (close)

Shanghai – Composite: DOWN 2.1 percent at 3,509.08 (close)

New York – Dow: DOWN 1.8 percent at 31,402.01 (close Thursday)

Euro/dollar: DOWN at $1.2113 from $1.2166 at 2200 GMT

Pound/dollar: DOWN at $1.3928 from $1.4141

Euro/pound: UP at 86.98 pence from 86.04 pence

Dollar/yen: UP at 106.39 yen from 105.87 yen

Brent North Sea crude: DOWN 0.8 percent at $66.36 per barrel

West Texas Intermediate: DOWN 0.9 percent at $62.98 per barrel