Australia

Australian shares are set to fall in line with Wall Street as US inflation beat expectations to hit a 40-year high, adding to expectations the US Federal Reserve will respond with larger and more frequent interest rate rises this year.

ASX futures were down 51 points or 0.7% at 7132 near 8.00 am AEST, suggesting a negative start to trading.

A selloff in stocks intensified Thursday as bond yields rose in the wake of data showing inflation reached a new four-decade high, raising the stakes on whether the Federal Reserve will plot a more aggressive path on interest rates.

Major stock benchmarks turned sharply lower following the comment, while the yield on the all-important 10-year US Treasury note breached 2% for the first time since 2019. The S&P 500 fell 1.8%, while the Dow industrials shed 1.5%. Technology stocks were hit harder, with the Nasdaq sliding 2.1%.

The moves followed new data showing inflation had accelerated to a 7.5% annual rate in January, topping economists' forecasts and December's 7% pace. Benchmarks briefly recouped their losses before sliding again, with the worst of the losses coming after remarks from a Fed official, signalling the central bank may move more drastically to curtail inflation.

Locally, the S&P/ASX 200 closed 0.3% higher at 7288.5 as the heavyweight financial sector racked up a third consecutive gain. National Australia Bank rose 4.5% after lifting 1Q profit by 9.1% and increasing its share of lending markets. Rivals ANZ, Westpac and Commonwealth put on between 1.1% and 1.2%, as the financial sector rose 0.9%.

Tech stocks also rose, with Block's ASX-listed securities adding 9.7% following a similar surge on the Nasdaq. Megaport jumped 7.6% after analysts reaffirmed their positive view of the stock.

Energy, health and consumer stocks dragged. The ASX 200 is up by 2.4% so far this week.

Elsewhere in the world, stock markets were mixed. The Stoxx Europe 600 fell 0.2%. In Asia, Japan's Nikkei 225 added 0.4% and the Shanghai Composite ticked up 0.2%. In Hong Kong, China Evergrande shares rose 5.4% after reports that the embattled property company plans to restore construction and sales activity, while refraining from a fire sale of its assets..

Turning to commodities, gold futures declined 0.4% to $US1829.40 an ounce; Brent crude lost 0.3% to $US91.27 a barrel; Iron ore rose 4% to US$152.50.

In bond markets the yield on the Australian 10-year bond was flat at 2.10%. The benchmark US 10-year Treasury yield jumped to 2.04%, the highest level since 2019, amid a record high for inflation in January. Yields fall when prices rise.

The Australian dollar was buying 71.75 US cents near 8.00am AEST, down from the previous close of 71.77. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, rose to 89.72.

Asia

Chinese stocks finished mixed, with gains among coal miners and construction-related sectors offset by renewables and home-appliance makers. Construction-material companies could get a lift from expectations that Beijing will stabilize growth, China Fortune Securities says. Anhui Conch Cement added 3.6% and Xinjiang Tianshan Cement gained 2.5%. China Shenhua and Yankuang Energy each added over 4%, extending this week's uptrend. Among laggards, electric-vehicle battery maker CATL lost 5.3%, LONGi Green Energy shed 3.8%, while white-goods makers Midea Group and Haier Smart Home each slid more than 3%. The Shanghai Composite Index rose 0.2%, gaining for a fourth straight session. The Shenzhen Composite Index slipped 0.6% and the ChiNext Price Index closed 2.0% lower.

In Hong Kong stocks rose, as property-related companies helped push the benchmark Hang Seng Index to close 0.4% higher. Shares of developers gained after reports China Evergrande would fully restore construction and sales activity. Hong Kong equities were also supported by the solid performance of the US ADR market overnight, KGI Securities said. Country Garden Holdings, China Overseas Land and China Resources Land advanced 4.5%, 3.8% and 2.8%, respectively. A notable laggard is Wuxi Biologics, erasing 5.4% after its earlier inclusion on a U.S. "unverified list" clouded outlook.

Meanwhile, Japanese stocks ended higher, driven by gains in electronics and chemical companies posting strong results. Renesas Electronics jumped 7.7% after projecting a 65% on-year rise in 1Q revenue. Shiseido soared 6.8% after guiding for rises in fiscal-year operating profit and dividend. Honda Motor gained 5.6% after boosting its fiscal-year net-profit view. The Nikkei Stock Average rose 0.4%.

Europe

European stocks closed mixed as investors reacted to a slew of earnings and news US CPI hit a 40-year high of 7.5%. The pan-European Stoxx 600 slipped 0.2%.

"It looks like the market has accustomed itself to these high CPI readings, although the chances of a 50 basis-point hike at the next Federal Reserve meeting have increased dramatically," IG analyst Chris Beauchamp says.

In London, the FTSE 100 rose 0.4%, shrugging off the higher-than-expected US CPI reading.

"The UK benchmark continues to look resilient despite the early weakness in the US, with the DAX also managing to hold up reasonably well, against a backdrop of increasing inflation risk," Hewson says.

North America

A selloff in stocks intensified Thursday as bond yields rose in the wake of data showing inflation reached a new four-decade high, raising the stakes on whether the Federal Reserve will plot a more aggressive path on interest rates.

Major stock benchmarks turned sharply lower following the comment, while the yield on the all-important 10-year US Treasury note breached 2% for the first time since 2019. The S&P 500 fell 1.8%, while the Dow industrials shed 1.5%. Technology stocks were hit harder, with the Nasdaq sliding 2.1%.

The moves followed new data showing inflation had accelerated to a 7.5% annual rate in January, topping economists' forecasts and December's 7% pace. Benchmarks briefly recouped their losses before sliding again, with the worst of the losses coming after remarks from a Fed official, signalling the central bank may move more drastically to curtail inflation.

The data injected fresh uncertainty into a market that had shown some signs of stabilizing: The S&P 500 had risen seven of the past 10 trading days. Money managers say they are bracing for more volatility as investors assess the likelihood of whether the Federal Reserve will have to act more aggressively to tame inflation.

"This trend is worrisome for equity markets as it could mean a more aggressive Fed policy response, and that concern will typically pressure equity markets," said Matt Peron, director of research at Janus Henderson Investors. "We caution that markets could remain choppy for the coming months until either inflation stabilizes or the market is comfortable that the Fed is doing enough, but not too much."

James Bullard, president of the Federal Reserve Bank of St. Louis, suggested the Fed may be willing to make a big move. In an interview with Bloomberg News, Mr. Bullard said he would like to see rates up 1% by July 1, adding that he was "already more hawkish, but I have pulled up dramatically what I think the committee should do."

All 11 sectors of the S&P 500 closed in the red. Shares of fast-growing companies were hit hardest. Tech stocks in the S&P 500 dropped 3.1%, with software, IT services and semiconductor companies all mostly falling. Qualcomm, Advanced Micro Devices and Adobe fell more than 5% each, while Apple shed 2.4%.

Meanwhile, Twitter shares were down 2% after the social-media company said it had largely dodged the effect of privacy changes hurting Facebook parent Meta Platforms, falling alongside most other tech stocks. Uber Technologies slipped 6.8% after the ride-hailing firm said quarterly revenue climbed 83%.

Other laggards included PepsiCo, which fell 2.2% after raising its dividend and setting a $10 billion stock-buyback program. PepsiCo also added to the worrying outlook for inflation after the drink maker's chief financial officer, Hugh Johnston, said cost pressures could continue into 2023.

Among the few bright spots, Walt Disney added 3% after it reported 11.8 million new subscribers for its Disney+ streaming service in the fourth quarter. Twilio rose 1.3% after the software company said revenue and profits topped analysts' forecasts. Mattel also topped forecasts, sending shares of the toy maker 7.2% higher.

Jay Hatfield, portfolio manager of the InfraCap Equity Income ETF, said he expects the stock market to stabilize once 10-year Treasury yields find a bottom, eventually settling in somewhere around 2%.

Mr. Peron, for his part, expects the stock market will only stabilize in the second half of the year. "The margin of error for the Fed is getting smaller," he added.