Dollar soars to 16-month high, stocks rebound after CPI scare

By Herbert Lash and Marc Jones

NEW YORK/LONDON (Reuters) – The dollar rose on Thursday, hitting a 16-month high a day after the strongest inflation reading in more than three decades, as currency markets anticipated U.S. interest rate hikes next year while equities headed higher, with stock investors focused on the rosy earnings outlook.

The UK’s blue-chip stock index hit 20-month highs as miners bounced on relief that property developer China Evergrande averted a default. European shares rose after Goldman Sachs said earnings have been resilient to supply chain snags.

The dollar index, which gauges the currency against six peers including the yen and euro, rose more on Thursday. On Wednesday the greenback had its biggest daily jump since March following U.S. consumer price data. [/FRX]

The CPI posted its biggest monthly gain in four months to lift the annual increase in inflation to 6.2%, the strongest year-on-year rise since November 1990.

The dollar pushed the euro below $1.15, leaving the next major chart support level down at $1.12. European stocks shuffled higher, sensing the potential for a competitiveness boost, but Japan’s yen slid toward a four-year low at 114.15 per dollar.

“Inflation in and of itself isn’t always a bad thing for the equity market,” Don Townswick, director of equity strategies at institutional asset manager Conning. “Typically tightening happens when the economy is doing really well, so merely the prospect of some higher interest rates isn’t a problem.”

MSCI’s all-country world index advanced 0.19% and the broad STOXX Europe 600 index rose 0.24%.

On Wall Street, the Dow Jones Industrial Average slid 0.20%, the S&P 500 added 0.21% and the Nasdaq Composite advanced 0.78%.

China and Japan’s stock markets also rose. China’s markets were supported by property giant Evergrande avoiding default again and hopes Beijing would give the broader sector support. The Nikkei was helped by the weaker yen, which aids exporters. [.T][.SS]

Chinese blue chips rallied 1.6%. Evergrande jumped nearly 7%. Japan’s Nikkei ended up 0.6% while the yen weakened as far as 114.15 per dollar from as strong as 112.73 earlier this week.

INFLATION

Tesla gained 0.8% to claw back some of the 12% lost after CEO Elon Musk said he would sell about $5 billion of his shares in the electric carmaker he founded.

Walt Disney fell nearly 7.6% to lead declines among Dow components, as it reported the smallest rise in Disney+ subscriptions since the service’s launch and posted downbeat profits at its theme parks. [.N]

Gold prices neared five-month highs they touched the previous session as investors have sought inflation hedges. Gold jumped to a five-month high of $1,868.20 overnight before easing to around $1,862 on Thursday.

Oil rose above $83 a barrel in volatile trading, recovering from sharp falls triggered by inflation concerns as the Organization of Petroleum Exporting Countries cut its 2021 oil demand forecast due to rising energy prices.

Brent crude rose $0.42 to $83.06 a barrel. U.S. crude added $0.59 to $81.93 a barrel.

Bitcoin hit a fresh record at $69,000 before dipping back to around $64,860.

(Reporting by Herbert Lash, additional reporting by Marc Jones in London, Kevin Buckland in Tokyo, Editing by Timothy Heritage, Chizu Nomiyama and David Gregorio)

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