Global stocks mixed as inflation fears compete with economic optimism

Global stock markets headed in different directions Tuesday, but Wall Street recouped early losses after Federal Reserve chief Jerome Powell tamped down inflation worries.US shares tumbled early but largely recovered by the close after Powell's comments, although the tech-rich Nasdaq closed lower.

London's benchmark FTSE 100 stocks index added 0.2 per cent but Frankfurt's DAX 30 gave up 0.7 per cent, after most Asian markets posted gains.

Markets have become jittery about the prospects that the pandemic recovery will ignite inflation and lead to rising lending rates, especially in the US economy, where Congress is moving forward on a $1.9 billion stimulus plan. "Investors are quickly rediscovering that not all stocks are created equal in a Covid recovery, as expensive tech names (are sold) to provide the source of funds for less expensive travel-related markers, along with energy and other inflation beneficiaries," Axi strategist Stephen Innes noted.

But Art Hogan of National Securities said markets reacted to signals that the economy is poised to rebound, and may take time to notice that  "faster economic growth is likely to drive better earnings. "Powell appeared Tuesday in the first of two days of testimony before Congress -- a twice-yearly event -- and said that while inflation could become  "volatile" this year as spending recovers from the pandemic collapse, those price increases are unlikely to be large or persistent.

While pledging to keep the benchmark lending rate low until inflation remains above the 2.0 per cent target for some time, he stressed that the Fed is prepared to handle whatever comes its way, so  "if it does turn out that unwanted inflation pressures arising are persistent and we have the tools to deal with that. "He noted that US inflation averaged less than two percent inflation over the last 25 years.

In the eurozone, inflation rose 0.9 per cent in January compared with a 0.3 per cent drop in December, official data showed, adding to concerns that price increases are picking up momentum.

On foreign exchange markets, the pound traded near a three-year high against the dollar, a day after British Prime Minister Boris Johnson unfolded a roadmap out of the UK's coronavirus lockdown from March.

But British unemployment is now near a five-year high at 5.1 per cent, and could surge further after the government ends the furlough support scheme keeping millions of workers in jobs during the lockdown.

Bitcoin stumbled in its record-breaking run, falling nearly 13 per cent to around $48,300 after US Treasury Secretary Janet Yellen on Monday pilloried the virtual currency as an inefficient means of payment that consumed a vast amount of energy per transaction.

Oil prices bobbed up and down but retreated sharply late in the day.