World stocks fall on inflation concerns amid strong US data reports

WASHINGTON: Global equities stepped back from record highs on Thursday as investors studied data indicating a uptick in jobs growth for cues on the trajectory of economic recovery and inflation.

The number of Americans filing new claims for unemployment benefits dropped below 400,000 last week for the first time since the COVID-19 pandemic started more than a year ago, said the US Labor Department in a report that points to a strengthening labor market.

The US non-manufacturing activity index rebounded to 64 last month, the highest reading in the series' history, from 62.7 in April.

And oil prices rose for a third straight session.

Yet, wary investors backed away from big bets over concerns of inflation ahead of the Friday release of US jobs data, which should offer further clarity on whether the faster-than-expected pace of economic recovery can be sustained and what that might mean for monetary policy.

Gold prices extended declines on Thursday, retreating more than 1% as a strengthening labor market helped boost the dollar.

The euro was last down 0.59 percent, at $1.2137, drifting away from highs scaled earlier in the week, while Europe's broad FTSEurofirst 300 index dropped 0.15 percent to 1,735.03.

A surge in euro zone business activity did little to improve sentiment. IHS Markit's final composite Purchasing Managers' Index (PMI) jumped to 57.1 last month from April's 53.8, its highest level since February 2018.

There was a similar pullback in Asia, with MSCI's broadest index of Asia-Pacific shares outside Japan shedding 0.44%, after reaching three-month highs on Wednesday.

The dollar index, which tracks the greenback versus a basket of six other currencies, rose 0.51 percent to 90.368 after falling 2% in April and a further 1.6% in May.

The MSCI world equity index, which tracks shares in 50 countries, shed 0.59% to 710.26.

Wall Street's main indexes opened lower on Thursday as investors weighed the influx of US economic data.

The Dow Jones Industrial Average fell 150.51 points, or 0.43%, to 34,449.87, the S&P 500 lost 27.33 points, or 0.65%, to 4,180.79 and the Nasdaq Composite dropped 153.56 points, or 1.12%, to 13,602.76.

While broader stock markets remain close to record highs, the momentum seen earlier in the year has ebbed as investors worry a stronger-than-expected rebound from COVID-19 means higher inflation and sooner-than-expected monetary policy tightening.

Thursday's weekly US unemployment claims report will be followed by monthly jobs numbers on Friday. Investors will be looking for signs of an economic rebound and rising inflation.

So far though, "increases in inflation expectations have coincided with equities performing well recently," said Oliver Jones, senior markets analyst at Capital Economics.

"In general, we suspect that these conditions will remain in place for a while longer."

Capital Economics forecasts that real global output will grow at the fastest rate in nearly 50 years this year.

"While it is possible that major central banks eventually have to tighten policy faster than is widely expected if inflation does not fall back in the way they are anticipating, it will be hard to tell if this is happening until next year at the earliest," Jones said.

Investment managers are also becoming increasingly worried, with BlackRock founder Larry Fink the latest to warn that the market was underestimating the risk of higher inflation.

Philadelphia Federal Reserve Bank President Patrick Harker also restated his call that "it may be time to at least think about tapering our $120 billion in monthly Treasury bond and mortgage-backed securities purchases."

The Fed has already announced it would begin unwinding the corporate bond holdings it acquired last year to calm credit markets at the height of the pandemic.

In Australia, the central bank is expected to begin tapering its pandemic emergency stimulus from next month when investors believe it would announce not extending its three-year yield target beyond the April 2024 bond.

European Central Bank (ECB) chief Christine Lagarde said on Wednesday the ECB will support the euro zone "well into" its recovery from a pandemic-induced double dip recession.

Those comments helped euro zone bond yields hold near record lows on Thursday.

Germany's 10-year yield, the benchmark for the bloc, was up less than a basis point at -0.19%.

US crude recently rose 0.06% to $68.87 per barrel and Brent was at $71.42, up 0.1% on the day.

Spot gold dropped 1.9% to $1,871.50 an ounce.