LONDON: Leading European and Asian stock markets largely retreated along with the dollar Thursday as investors tracked developments surrounding decades-high inflation.
US consumer prices rose seven percent on-year in December, the fastest rate since 1982, as supply snarls and energy costs were compounded by surging demand from Americans returning to normal life.
However, Wednesday's highly-anticipated reading was in line with expectations and analysts pointed out that the increase from the previous month had slowed and was below forecasts, indicating that the rally may have peaked or was close to topping out.
"Supercharged US inflation figures dampened risk appetite, resulting in a mixed picture overnight in Asia and softer trade across Europe," noted Victoria Scholar, head of investment at Interactive Investor.
There remains much debate on how many times the Federal Reserve will hike US interest rates to fight strong inflation and when it will begin to cut back on the holdings of bonds it purchased as part of its vast stimulus programme.
"March has all but made a rate (hike) by the Fed a foregone conclusion. June is not far behind either," predicted Jack Janasiewicz at Natixis Investment Managers Solutions.
Traders are fearful that markets will not have an easy ride this year as the Fed removes the massive support that has helped drive a two-year rally and saw the economy through the pandemic.
"Inflation is going to be with us no matter if they increase rates, and the challenges (to) the economy here are just going to build on that," Shana Sissel, of Strategic Wealth Partners, told Bloomberg Television.
"I am concerned that there is going to be quite a bit of volatility in the market and our economy is going to slow down considerably."
Elsewhere, oil prices steadied following gains Wednesday on data showing US crude stockpiles last week fell to the lowest level since 2018, lifting hopes for demand in the world's top economy.
"Supply disruptions, uncertainty over OPEC spare capacity and waning concerns over Omicron have all proved bullish for prices. (The stockpile) numbers provided a further boost," said Warren Patterson of ING Groep NV.
Key figures around 1200 GMT
London - FTSE 100: DOWN 0.1 percent at 7,546.30 points
Frankfurt - DAX: FLAT at 16,009.28
Paris - CAC 40: DOWN 0.6 percent at 7,196.77
EURO STOXX 50: DOWN 0.1 percent at 4,312.37
Tokyo - Nikkei 225: DOWN 1.0 percent at 28,517.94 (close)
Hong Kong - Hang Seng Index: UP 0.1 percent at 24,429.77 (close)
Shanghai - Composite: DOWN 1.2 percent at 3,555.26 (close)
New York - DOW: UP 0.1 percent at 36,290.32 (close)
Euro/dollar: UP at $1.1463 from $1.1451 late Wednesday
Pound/dollar: UP at $1.3740 from $1.3713
Euro/pound: DOWN at 83.42 pence from 83.48 pence
Dollar/yen: DOWN at 114.48 yen from 114.53 yen
Brent North Sea crude: UP 0.1 percent at $84.78 per barrel
West Texas Intermediate: FLAT at $82.67 per barrel