European Stocks Steady But Inflation Fears Haunt Wall Street

European stock markets steadied Wednesday after the previous session's slump thanks to upbeat regional growth data, but Wall Street dipped again on growing inflation fears.

A bigger-than-expected hike of 4.2 percent in consumer prices in April saw the Dow Jones index give up 1.3 percent two hours into trading amid fears of an about-face in Federal Reserve policy, while the tech-heavy Nasdaq lost 2.5 percent.

The larger-than-expected spike in US inflation last month "surprised" Federal Reserve Vice Chair Richard Clarida, but he said the central bank is ready to act if needed to contain prices.

However, the Fed continues to believe the sharp price increases over the past two months are due to the rebound following the unprecedented shock inflicted by the Covid-19 pandemic and will not last, he said.

"We've been saying for some time that reopening the economy would put some upward pressure on the price level.

"We have pent-up demand in the economy. It may take some time for supply to rise up to the level of demand," Clarida said.

The Fed insists that while it sees inflation spiking owing to the recovery and the low base of comparison last year, officials will not make any policy adjustments such as lifting interest rates yet.

"Although retailers do not need to worry too much about inflation impacting consumer spending, at least in the short-term, the jump in inflation is becoming a serious operational concern," said Neil Saunders, managing director of GlobalData.

The picture was moderately bright in Europe as London's benchmark FTSE 100 index added 0.9 percent after losing 2.5 percent Tuesday on inflation fears that continued to trouble most Asian equity markets Wednesday.

Bolstering Britain was data which showed a rapid Covid-19 vaccine rollout helped push up GDP 2.1 percent in March, leaving a first quarter fall of 1.5 percent -- two percentage points better than forecast.

Frankfurt crept 0.2 ahead while Paris likewise barely budged.

In foreign exchange, the dollar was higher against its main rivals, winning support from the prospect of tighter US interest rates sooner than expected because of high inflation.

In Europe, "economic recovery optimism is overshadowing concerns of runaway inflation and helping... stocks pare some of the deep losses from the previous session", noted Sophie Griffiths, market analyst at Oanda trading group.

The EU on Wednesday sharply revised its growth forecasts for this year and next, saying an accelerated vaccination drive and the bloc's landmark recovery plan would lift Europe out of recession.

Global equities have had a rocky week as traders bet that the economic recovery will fan inflation and prompt central banks to reverse their easy money policies.

A range of commodities including copper, iron ore and lumber have been touching multi-year highs, while observers warn rising demand for employees is also pushing up wage costs, adding upward pressure to prices.

In a reminder that the global recovery from the pandemic remains fragile, oil demand dropped last month as the coronavirus surged in India and elsewhere, the International Energy Agency said Wednesday.