Inflation fears routed Wall Street equities on Wednesday after government data showed sharp US price increases last month, while European stock markets remained steady.
A bigger-than-expected hike of 4.2 percent in consumer prices last month compared to April 2020 prompted the Dow to close two percent lower amid concerns the Federal Reserve will end its easy money policies sooner than planned.
The tech-heavy Nasdaq lost 2.7 percent at the close, and the broad-based S&P 500 sunk 2.1 percent.
Fed Vice Chair Richard Clarida admitted he was "surprised" by the increases, but said the central bank is ready to act if needed to contain prices.
However, the Fed continues to believe the upticks in inflation over the past two months are temporary increases brought on by the rebound following the unprecedented shock inflicted by the Covid-19 pandemic in 2020.
"We've been saying for some time that reopening the economy would put some upward pressure on the price level," Clarida said. "We have pent-up demand in the economy. It may take some time for supply to rise up to the level of demand."
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 from their zero level.
However, traders are skeptical, said Art Hogan, chief market strategist at National Securities.
"The market is saying there's no way the Fed can look at these numbers and not adjust monetary policy, in a timeframe that's sooner than we anticipate," Hogan said.
The picture was moderately brighter in Europe, as London's benchmark FTSE 100 index added 0.9 percent after losing 2.5 percent the day before.
Inflation fears continued to trouble most Asian equity markets Wednesday.
Bolstering Britain was data that 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.
– Stronger growth –
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.
– Key figures around 2030 GMT –
New York – Dow: DOWN 2.0 percent at 33,587.66 (close)
New York – S&P 500: DOWN 2.1 percent at 4,063.04 (close)
New York – Nasdaq: DOWN 2.7 percent at 13,031.68 (close)
London – FTSE 100: UP 0.8 percent at 7,004.63 points (close)
Frankfurt – DAX 30: UP 0.2 percent at 15,150.22 (close)
Paris – CAC 40: UP 0.2 percent at 6,279.35 (close)
EURO STOXX 50: FLAT at 3,947.43 (close)
Tokyo – Nikkei 225: DOWN 1.6 percent at 28,147.51 (close)
Hong Kong – Hang Seng Index: UP 0.8 percent at 28,231.04 (close)
Shanghai – Composite: UP 0.6 percent at 3,462.75 (close)
Euro/dollar: DOWN at $1.2072 from $1.2148
Pound/dollar: DOWN at $1.4053 from $1.4140
Euro/pound: DOWN at 85.89 pence from 85.91 pence
Dollar/yen: UP at 109.63 yen from 108.62 yen
Brent North Sea crude: UP 0.8 percent at $69.10 per barrel
West Texas Intermediate: UP 0.9 percent at $65.84 per barrel