Stock market today: Worries over rates and inflation send world shares lower

Shares retreated in Europe and Asia on Friday after unexpectedly strong reports on the U.S. economy raised the possibility of interest rates staying painfully high.

U.S. futures edged higher, while oil prices fell back.

In early European trading, Germany’s DAX lost 0.6% to 18,638.00, while the CAC 40 in Paris gave up 0.4% to 8,071.23. Britain’s FTSE 100 shed 0.5% to 8,301.27.

The futures for the S&P 500 and the Dow Jones Industrial Average edged 0.1% higher.

Japan’s Nikkei 225 index lost 1.2% to 38,646.11 after the government reported that core inflation excluding volatile food and energy prices was at 2.2% in April, lower than forecast. Analysts said that suggested less pressure on the Bank of Japan to raise interest rates.

“In fact, in seasonally-adjusted terms, consumer prices excluding fresh food and energy have now held steady for two consecutive months. That means that it won’t take long before inflation excluding fresh food and energy falls below the Bank of Japan’s 2% target,” Marcel Thieliant of Capital Economics said in a commentary.

He said the central bank was unlikely to be able to raise its key rate, much more after it hiked it to a range of zero to 0.1% from minus 0.1% in March.

In Hong Kong, the Hang Seng fell 1.5% to 18,590.33, while the Shanghai Composite index dropped 0.9% to 3,088.87.

A rally in property shares after the announcement of new measures to support the ailing industry has proven short-lived as market players question whether it will be enough to end a prolonged crisis in the housing sector.

Shares in China Vanke, a major developer, dropped 6%, as did Hong Kong-traded shares in Shimao Group Holdings, another big property company. Agile Group Holdings sank 8%.

South Korea’s Kospi declined 1.3% to 2,687.60, while in Australia, the S&P/ASX 200 shed 1.1% to 7,727.60.

Taiwan’s Taiex slipped 0.2% after hitting a record high on Thursday.

On Thursday, most U.S. stocks slumped when strong economic reports fueled concern that the Federal Reserve might keep interest rates high to ensure there is a lid on inflation. The weakness was widespread and overshadowed another blowout profit report from market heavyweight Nvidia.

The S&P 500 fell 0.7% in its sharpest drop since Apri. The Dow Jones Industrial Average dropped 1.5% and the Nasdaq composite slipped 0.4%.

One report suggested growth in U.S. business activity is running at its fastest rate in more than two years. S&P Global said its preliminary data showed growth improved for businesses not only in the services sector but also in manufacturing.

A separate report showed the U.S. job market remains solid despite high interest rates. Fewer workers applied for unemployment benefits last week than economists expected, an indication that layoffs remain low.

The Fed is trying to pull off the difficult feat of slowing the economy enough through high rates to get inflation back to 2% but not so much that it forces a painful recession. It’s been holding its main interest rate at the highest level in more than two decades to do so, and Wall Street is itching for some easing.

The sharpest single drop within the S&P 500 came from Live Nation Entertainment, which tumbled 7.8% after the Justice Department accused it and its Ticketmaster business of running an illegal monopoly over live events in the country.

In other trading early Friday, U.S. benchmark crude oil slipped 19 cents to $76.68 per barrel in electronic trading on the New York Mercantile Exchange. It gained 30 cents on Thursday.

Brent crude, the international standard, fell 15 cents to $81.21 per barrel.

The U.S. dollar rose to 157.04 Japanese yen from 156.96. The euro climbed to $1.0824 from $1.0817.

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