US stocks climb despite sizzling inflation

LONDON: US stocks pushed higher on Thursday despite data showing inflation raising more than expected which could push policymakers to rethink their stimulus measures.

With the global economy seeing a blockbuster recovery from last year's virus-induced collapse, investors have been in a broadly buoyant mood with expectations that equities will continue higher thanks to reopening, vaccinations, government stimulus and vast central bank support.

However, that optimism is being dampened by fears the rebound is causing a spike in inflation that will force banks -- particularly the Federal Reserve -- to wind back their ultra-loose programmes sooner than previously flagged, despite constant reassurances they will not.

Data released Thursday showed that the annual inflation rate has accelerated to a higher-than-expected 5.0 percent in May.

Excluding volatile food and energy prices, the "core" consumer price index (CPI) rose 3.8 percent over the last year, without seasonal adjustment, "the largest 12-month increase since the period ending June 1992," the Labour Department said.

"We suspect today's data will spark a more involved discussion at next week's FOMC meeting about a potential tapering plan," said analyst Patrick O'Hare at Briefing.com, referring to the monetary policy committee at the Fed.

He said "it certainly raises questions as to why the Federal Reserve continues to maintain a pace of buying at least $120 billion per month in Treasury and agency mortgage-backed securities" to support the US economy.

US stocks pushed higher despite the prospect of a stimulus slowdown and a quicker rise in interest rates, as other data showed that first-time claims for jobless benefits continued to fall last week.

The blue-chip Dow was up 0.3 percent in late morning trading, with the broader S&P 500 hitting a new intra-day record high.

"Overall, this morning's data was supportive of the reopening trade, which is why one might expect to see some relative strength in the value/cyclical areas of the market at today's open," said O'Hare in a note to clients before US markets opened.

Euro zone stocks slid after the European Central Bank, as expected, held its interest rates steady and said it is too early to reduce economic stimulus measures.

Rabobank analyst Jane Foley said the ECB remained committed to very dovish policy settings despite the improved economic outlook.

By forgoeing using thin summer trading conditions to lower stimulus purchases of bonds, ECB chief Christine Lagarde "clearly wanted to give a 'steady as she goes' message," Foley said.

The lack of significant movement in the euro "would suggest she has succeeded", Foley added.

Traders were tracking also the start of a summit of G7 wealthy nations, ahead of which the United States said it would buy 500 million Covid-19 vaccine doses to distribute among poorer nations.

US-Chinese relations were in focus, too, after US President Joe Biden's decision to revoke his predecessor Donald Trump's executive order against Chinese-owned mobile apps TikTok and WeChat.

It comes as commerce officials from the world's two biggest economies have held discussions on trade and investment links.

Chinese Commerce Minister Wang Wentao and his counterpart Gina Raimondo "agreed to promote the healthy development of pragmatic cooperation in trade and investment", during a phone call Thursday.