Post by : Rameen Ariff

Photo : AFP

NEW YORK – Global stock markets fell on Friday as investors reacted to rising inflation in the United States and Europe. Wall Street indexes retreated from record highs after key US inflation data suggested that the Federal Reserve may not be able to cut interest rates as much or as quickly as expected.

The personal consumption expenditures (PCE) price index, a key measure of inflation watched by the Fed, held steady at 2.6% in July. The core PCE, which excludes food and energy prices, rose slightly to 2.9%. Both readings are above the Fed’s target of 2%.

“The bad news is, inflation is continuing to inch higher, which isn’t really the environment the Fed likely wants to cut in,” said Bret Kenwell, an analyst at eToro.

Investors had hoped that the Fed would lower interest rates soon to support the economy, especially after concerns about a weak labor market. A small cut of 25 basis points in September is still possible, but higher inflation makes it harder for the Fed to act quickly.

Wall Street Retreats

On Friday, the main US stock indexes fell ahead of the long Labor Day weekend. The Dow Jones and S&P 500 had reached all-time highs on Thursday, but the inflation data prompted investors to sell shares and take profits. Wall Street will be closed on Monday for the holiday.

European Inflation and Economic Concerns

In Europe, economic concerns added to market worries. Germany, Europe’s largest economy, saw unemployment rise above three million in August, a level not seen in over ten years. German manufacturers are struggling due to high energy costs and competition from China, as well as new tariffs imposed by the United States.

German inflation also rose to 2.2% in August, which may make it harder for the European Central Bank (ECB) to lower interest rates further. “Today’s German inflation data will catch the hawks’ attention, as it bolsters the argument for a high bar to yet another ECB rate cut,” said Carsten Brzeski, an economist at ING.

Meanwhile, inflation in France and Italy slowed, and it remained steady in Spain, showing mixed economic signals across Europe.

UK Financial Market Pressure

In the United Kingdom, investors reacted to news that the Labour government might impose a windfall tax on banks. NatWest shares fell 4.4% on London’s FTSE 100 index, while Lloyds and Barclays also saw heavy selling. The proposed tax aims to raise billions of pounds to help the government manage financial challenges.

“Any such rumours are likely to have an exaggerated impact given the government’s obvious need to raise more income,” said Richard Hunter, head of markets at Interactive Investor.

Global Market Outlook

Rising inflation in major economies is making investors cautious. Higher prices mean central banks may slow down interest rate cuts, keeping borrowing costs higher for longer. This can affect businesses, consumers, and global economic growth.

Despite short-term market drops, experts suggest that investors should remain calm. Economic indicators show mixed signals, and central banks may still act to support growth if needed.

In summary, global markets are facing pressure due to rising inflation in the US and Europe. Investors are closely watching central banks for guidance on interest rates, while economic challenges in major countries like Germany and the UK add to uncertainty.

The current situation highlights the delicate balance that governments and central banks must maintain: controlling inflation while supporting growth. Investors and citizens alike will need to stay informed as economic conditions evolve in the coming months.