Morning Chronicle - Stocks slide as US inflation soars

In Europe, all of the major stock indices were down by more than two percent by mid-afternoon.

Paris's blue-chip CAC 40 was showing a loss of 2.3 percent, Frankfurt's DAX index was down 2.3 percent, Milan's FTSE MIB shed 4.6 percent, Madrid's IBEX tumbled 3.5 percent and London's FTSE dropped by 2.0 percent.

On Wall Street, stocks also dropped sharply at the open.

According to US government data, the consumer price index jumped by 8.6 percent on a 12-month basis in May, the steepest increase since December 1981, driven by surging energy and food prices.

"US CPI for May has come in stronger than expected," said Stephen Innes of SPI Asset Management. "Inflation is back on the highs; critically, it's across the board."

The numbers had been eagerly anticipated as investors hungrily look for clues as to the direction of US interest rates at next week's meeting of the Federal Reserve.

A half-point increase in US borrowing costs "was a done deal in any case, so these data aren't an immediate policy influence," said Innes.

But it also cemented expectations for another half-point increase in September, the expert said.

The dollar surged against the pound and other leading currencies as investors bet on an increase in US interest rates next week.

Inflation is soaring across the world, prompting the European Central Bank to finally join the Fed in tightening its monetary policy as it announced on Thursday that it would raise rates next month.

Economists warn that surging inflation, driven by rocketing energy prices, could push top economies into recession.

Adding to the unease was news that officials in China had once again locked down millions of people for Covid testing owing to another flare-up in cases, dealing a blow to hopes for an economic reopening.

"Warning signs about the economy are emerging as weekly (US) jobless claims are starting to rise, China's Covid situation will prove troublesome for supply chains over the next couple of quarters, and as inflationary pressures broaden and show no sign of easing," said Edward Moya, analyst at OANDA trading group.

"It seems reductions in global growth forecasts will become a steady theme over the next few months and that should complicate how much more tightening we see from central banks," he said.

The World Bank and OECD both lowered the global economic growth forecasts for this year earlier this week.

One bright note Friday was data showing that China's producer price inflation eased last month to its lowest level in more than a year.

- Key figures at around 1345 GMT -

New York - Dow: DOWN 1.7 percent at 31,738.00 points

London - FTSE 100: DOWN 2.0 percent at 7,325.37

Frankfurt - DAX: DOWN 2.3 percent at 13,867.36

Paris - CAC 40: DOWN 2.3 percent at 6,210.04

EURO STOXX 50: DOWN 2.6 percent at 3,626.93

Tokyo - Nikkei 225: DOWN 1.5 percent at 27,824.29 (close)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 21,806.18 (close)

Shanghai - Composite: UP 1.4 percent at 3,284.83 (close)

Euro/dollar: DOWN at $1.0532 from $1.0620 late Thursday

Euro/pound: UP at 85.11 pence from 84.98 pence

Dollar/yen: DOWN at 134.18 yen from 134.40 yen

Pound/dollar: DOWN at $1.2375 from $1.2495

Brent North Sea crude: DOWN 0.8 percent at $122.05 per barrel

West Texas Intermediate: DOWN 0.7 percent at $120.62 per barrel

burs/spm/lth

S.Robinson--MC-UK