World stocks slump, greenback gains grow as rate hike bets keep investors cautious

By Katanga Johnson

WASHINGTON (Reuters) - Global equity markets edged lower on Thursday and oil slipped while the safe-haven dollar rose after the latest red-hot U.S. inflation reading heightened investor fears about Federal Reserve interest rate hikes and a possible recession.

Wednesday's data showed U.S. consumer prices jumped 9.1% year-on-year in June, up from May's 8.6% rise.

The data was seen as firming the case for the Federal Reserve to raise rates aggressively. Policymakers might consider a 100 basis point increase at the July meeting, Atlanta Federal Reserve Bank President Raphael Bostic said.

The pan-European STOXX 600 index lost 1.53% and MSCI's gauge of stocks across the globe shed 0.82%.

On Wall Street, stock indexes tumbled on Thursday after weaker-than-expected earnings from big U.S. banks JPMorgan Chase & Co and Morgan Stanley underscored growing fears of a sharp economic downturn.

The Dow Jones Industrial Average fell 0.46%, the S&P 500 lost 0.30% and the Nasdaq Composite added 0.03%.

Meanwhile, the dollar soared to a 20-year high, emerging as a preferred save haven amid growing economic risks of late, as gold slumped more than 2% to a near one-year low on Thursday. The dollar index rose 0.351%, with the euro down 0.47% to $1.0013.

"The Fed probably needs to temper people’s expectations in terms of what they can do," said Eddie Cheng, head of international multi-asset investment at Allspring Global Investments.

"In the past hiking cycle, we have observed that inflation kept rising during the hiking cycle. ... It takes time for the monetary policy to affect inflation."

Cheng said that riskier assets will be the "collateral damage" in the Fed's attempts to reign in inflation.

JPMorgan Chase, the United States' biggest bank, reported a fall in second-quarter profit. Chief Executive Jamie Dimon warned that geopolitical tension, high inflation, waning consumer confidence, the never-before-seen quantitative tightening and the war in Ukraine "are very likely to have negative consequences on the global economy sometime down the road."

"There was an irrational response to the JPMorgan and Morgan Stanley results," said Jay Hatfield, chief executive and portfolio manager at InfraCap in New York. "It wasn't a surprise that investment banking was weak.

"JPMorgan warned that there's uncertainty in the market, but if you're alive and breathing you know there’s uncertainty in the market."

Slowdown worries were exacerbated as the Labor Department's Producer Price Index report echoed Wednesday's Consumer Price Index data, showing hotter-than-expected inflation in June.