Markets feel unease over US rate hike prospects

File: Investors were somewhat shaken by solid US retail sales data released Tuesday that pointed to a surge in the country's inflation. Photo: Spencer Platt/Getty Images

LONDON – Stock markets diverged Wednesday, while the dollar traded mixed amid returning expectations of multiple US interest-rate rises this year.

Investors were meanwhile spooked by North Korea's threat to pull out of a historic summit.

After enjoying a relatively purple patch over the past week, investors were somewhat shaken by solid US retail sales data released Tuesday that pointed to a surge in the country's inflation.

That, in turn, could push the Federal Reserve to hike borrowing costs three more times this year.

Such expectations have sent benchmark 10-year US bond yields to seven-year highs. The prospect of debt costing more to service hit equities, sending all three main Wall Street indices lower on Tuesday.

READ: Inflation may overshoot target: US Fed's Williams

"US markets ended their recent winning streak after a rise in interest rate expectations pushed up yields and raised the prospect of four US interest rate rises this year," noted Michael Hewson, chief market analyst at CMC Markets UK.

The losses spread to much of Asia and Europe on Wednesday.

Tokyo ended 0.4 percent lower, also after data showed Japan's economy contracted in January-March for the first time in two years.

The dollar, which benefits from higher US rates, was holding above the 110 yen mark, or close to the highest level since early February.

The euro traded meanwhile around the weakest level this year, with a series of soft economic data out of the eurozone denting the prospects of an end to the European Central Bank's crisis-era stimulus. The pound continues to be dampened by Brexit uncertainty.

'Eye on North Korea' 

North Korea moved back into the spotlight as it threatened to cancel next month's historic summit between Kim Jong-un and Donald Trump if Washington seeks to push Pyongyang into unilaterally giving up its nuclear arsenal.

The announcement came as a shock after months of rapid diplomatic rapprochement that has fuelled hopes for peace on the peninsula.

READ: North Korea will never fully give up nuclear weapons: top defector

Earlier Wednesday it canceled a meeting with South Korea at the last minute, blaming joint US-South Korean military exercises, which it called a "rude and wicked provocation".

Pyongyang's shock announcement came as investors are juggling several other global issues, including the outcome of Trump's decision to pull out of the Iran nuclear deal, ongoing turmoil in the Middle East and the China-US trade spat.

There are hopes for a positive conclusion to the tariff stand-off between Washington and Beijing, but the latest round of talks will be closely monitored after a previous high-level meeting ended with no agreement and both sides far apart.

AFP

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