Markets fall on a hot economy

U.S. stocks have been weighed down by a persistently upbeat economy — and the Fed’s dovish rhetoric.

Unemployment is at its lowest in 53 years—a recovery in consumer spending despite high prices. The producer price index increased by the most in eight months. The economy is very strong, which means inflation is still high and sticky.

Chinese financial news outlet Caixin reported that Kong Lin, the former head of the bank’s subsidiary, is under investigation.

Tesla recalls 362,759 vehicles equipped with experimental driver assistance software. The company warned that the program, known as Full Self-Driving Beta, could cause cars to crash.

For a while, it looked like the markets could live with that – and even accept it as the new normal, in which economic growth could comfortably exist with inflation above 2.4%. With each report of higher-than-expected inflation, markets rose.

The markets eventually fell. The Dow Jones Industrial Average fell 1.27%, the S&P 500 lost 1.39%, and the Nasdaq Composite fell 1.79%. Not surprisingly, the market took a breather as hopes for a dovish Fed shortly faded.

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Indeed, it is not just that the Federal Reserve doves may be flying. It is where the hawks come in. Markets were widely speculating and pricing a 25 basis point interest rate hike for the next two Fed meetings.

What about Europe and United Kingdom?

In the E.U. and U.K., falling global energy costs will probably cause inflation to fall later this year. The region avoided energy shortages by having enough stockpiles, not needing as much energy, and having mild weather this winter.

This week, the European Commission cut its inflation outlook. It now predicts that inflation will be 5.7% this year and 2.6% in 2024 in the 20 countries that use the euro.

Electricity prices are higher than usual, making it harder for households and businesses. This will last for a while. And the International Energy Agency has warned that if demand does not fall further, Europe will face energy shortages this year. It could push prices up again.

Food prices are rising quickly, especially as wages can’t keep up with rising costs.. In the United States, grocery prices rose by 11.33% over the past year, while in the United Kingdom, food and soft drink prices rose by 16.74% year-on-year in January.

Source: Finance Brokerage