Volkswacht Bodensee - Oil prices, US inflation stoke Fed hike worries

After a rollercoaster week for markets, driven by a sharp escalation in the US-Iran war, US consumer inflation was unchanged at 3.4 percent in August, in line with analyst expectations -- and well above the Fed's two percent target.

It comes a day after the European Central Bank raised eurozone borrowing costs, citing the impact on energy costs from a Middle East conflict that has broadened in the past days after an offensive by the Iran-backed Houthis in Yemen.

After data released Friday by the US Bureau of Labor Statistics showed that the consumer price index (CPI) rose 0.4 percent from a month earlier, Wall Street rose at the opening bell to recoup some losses from the week's selling.

Bucking four straight tumbling sessions, the Dow added one percent while the S&P 500 followed shortly behind on 0.9 percent and the tech-heavy Nasdaq with 0.8 percent.

European stocks also gained, with London's FTSE 100 rallying 0.9 and Paris one percent after a volatile week.

"Arguably, the market has already been absorbing the likelihood of a rate hike," said Patrick O'Hare, chief market analyst at Briefing.com, pointing out that "major equity indices have seen some added selling pressure".

"That doesn't mean (the CPI data) was good. It just means it was good enough for a market that had been on the defensive ahead of its release, mindful that it is a report that needed to lean more toward 'great' to relieve the pressure of an anticipated rate hike that has been building," O'Hare said.

A hike would put Fed chairman Kevin Warsh on a collision course with President Donald Trump, who has frequently berated policy makers for not lowering interest rates, and for whom higher prices at the pump for voters present a major headache ahead of November's midterm congressional elections.

James Knightley, chief international economist at ING, said that "Fed funds futures contracts (imply) an 85 percent chance of a 25 basis point rate hike -- an outcome that we fully expect".

He suggested however that the increase could be a one-off, "similar to the hike implemented by Alan Greenspan's Fed in 1997".

While oil prices retreated Friday, they remain at levels deemed far too high by central banks hoping to keep inflation pressures from becoming entrenched in the wider economy.

Average diesel prices in the United States climbed above $6 a gallon on Friday for the first time, a shock increase for a key fuel in the transport and agriculture sectors.

Brent oil also almost touched $110 per barrel on Friday, its highest level since May, but fell back after the International Energy Agency slashed its forecast for global oil demand this year, citing the recent escalation in the Middle East war and resurgent energy prices.

Asian stock slumped across the board in the wake of heavy selling Thursday on Wall Street, with AI and other heavily indebted tech stocks hit as bond yields soared.

The 10-year US Treasury bond in particular -- which determines borrowing costs for everything from mortgages to car loans in the world's biggest economy -- neared the psychological threshold of five percent.

Bond yields for major economies from Japan to Europe and the US are now at levels last seen during the 2007-08 global financial crisis, a sign that investors worry governments will not curb spending enough even as deficits and debt levels soar.

The 30-year Treasury yield touched 5.36 percent, a new post-2007 peak, while the 10-year yield is near a 19-year high.

- Key figures at around 1345 GMT -

Brent North Sea Crude: DOWN 3 percent at $104.38 per barrel

West Texas Intermediate: DOWN 3.3 percent at $99.15 per barrel

New York - Dow: UP 1 percent at 52573.20 points

New York - S&P 500: UP 0.9 percent at 7,658.35

New York - Nasdaq: UP 0.8 percent at 26,301.04

London - FTSE 100: UP 0.9 percent at 10,699.44

Paris - CAC 40: UP 1 percent at 8,200.35

Frankfurt - DAX: UP 0.8 percent at 25,553.14

Tokyo - Nikkei 225: DOWN 1.9 percent at 64,011.34 (close)

Hong Kong - Hang Seng Index: DOWN 0.6 percent at 24,805.63 (close)

Shanghai - Composite: DOWN 1.2 percent at 3,888.11 (close)

Dollar/yen: DOWN at 153.463 yen from 154.34 yen on Thursday

Euro/dollar: DOWN at $1.1606 from $1.1609

Pound/dollar: UP at $1.3524 from $1.3510

Euro/pound: DOWN at 85.85 pence from 85.94 pence

burs-sbk/js

P.Keller--VB