A rebound in stocks ran out of steam on Wednesday as concerns about the economic growth outlook and rising inflation knocked sentiment, while a UK inflation reading of nine per cent underlined just how much higher interest rates might be headed.
Asian stocks managed to eek out their fourth consecutive session of gains but in Europe shares were mixed and futures on Wall Street pointed to a weaker open.
Many analysts have characterised this week's sharp rally as a short-term bounce of the sort common during a lengthier downward trend for equities. Few are willing to predict the end to selling after a bruising first five months of the year for risky assets given so much macroeconomic uncertainty.
"Investor sentiment and confidence remain shaky, and as a result, we are likely to see volatile and choppy markets until we get further clarity on the 3Rs - rates, recession, and risk," said Mark Haefele, chief investment officer at UBS Global Wealth Management.
By 0810 GMT, the broad Euro STOXX 600 was off 0.1 per cent, while Britain's FTSE 100 was also 0.1 per cent lower.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.6 per cent and is on its longest winning streak since February. Japan's Nikkei rose 0.94 per cent and miners led Australian shares about one per cent higher.
In currency markets, sterling was the big loser, shedding 0.9 per cent to $US1.2387 ($A1.7661) after UK consumer price inflation hit nine per cent in April, a 40-year high and roughly in line with analysts' expectations. The pound had risen sharply this week and some of Wednesday's fall was down to profit taking.
British inflation is now the highest among major economies but prices are rising rapidly across the world, forcing central banks to launch a series of rate hikes even in the face of slowing economic growth momentum.
Canada's April inflation reading is also due later on Wednesday.
The US dollar rose 0.3 per cent to 103.61, heading back towards its two-decade high reached last week, while the euro fell by a similar amount to $US1.0515 ($A1.4992).
Positive data had helped the short-term mood, with US retail sales meeting forecasts for a solid increase in April and industrial production beating expectations.
Data on Wednesday showed Japan's economy shrank less than expected in the first quarter.
Shanghai is also edging toward an end to its protracted lockdown and China's vice-premier made soothing comments to tech executives in the latest sign of a let up in pressure.
However, any good news was offset by the reminder from Federal Reserve Chair Jerome Powell that controlling inflation would demand rate rises and possibly some pain.
Investors have priced in 50 basis point US rate hikes in June and July and see the benchmark Fed funds rate nudging three per cent by early next year.
US Treasury yields were steady on Wednesday and below recent multi-year highs, but the German two-year government bond yield rose to its highest since December 2011 after more hawkish central banker comments. The European Central Bank's Klaas Knot said on Tuesday that a 50 basis point rate hike in July was possible if inflation broadens.
Commodities have rallied with stocks this week as markets have found reasons to hold out growth hopes, although most prices are below recent highs.
On Wednesday Brent crude futures gained 1.3 per cent to $US113.38 ($A161.65) a barrel and US crude futures rose 1.64 per cent to $US114.24 ($A162.88) a barrel.
S&P Global Ratings cut growth forecasts for China, the United States and the euro zone, underlining the weakening outlook for the world's major economies.
"The global economy continues to face an unusually large number of negative shocks," said chief economist Paul F. Gruenwald.
"Two developments have altered the macro picture," he said, pointing to Russia's invasion of Ukraine and inflation, which has turned out to be higher, broader and more persistent than first thought.
Australian Associated Press
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