Inflation Data, Lagarde’s Comments Rattle Global Stocks

Global stocks and bond markets retreated on Wednesday as investors scaled back expectations of swift interest rate cuts in the eurozone, the UK, and the US.

European Central Bank president Christine Lagarde signaled borrowing costs would come down in summer rather than spring, following the first rise in UK inflation in 10 months. Lagarde also said market expectations for an ECB rate cut this spring were “not helping” the fight against inflation.

The Stoxx Europe 600 closed 1.2% lower, its worst day since late October, and London’s FTSE 100 finished down 1.5%. The losses spread to the US as strong retail sales data cast further doubt on the prospect of early cuts by the Fed.

By mid-afternoon on Wall Street, the tech-heavy Nasdaq Composite had dropped 1.2%, while the S&P 500 had lost 0.9%. Traders reduced their bets on the Bank of England cutting rates after the unexpected increase in UK inflation to 4.5%.

The possibility of interest rate reductions delayed the reaction of European markets, with rate-sensitive real estate businesses among the weakest performers. According to Lagarde, her confidence in the medium-term sustainability of the eurozone’s inflation rate decline to the central bank’s target of 2% has grown.