London (AFP) - High oil prices, record American diesel costs and hot US inflation data on Friday cemented investor fears that the Federal Reserve is all but certain to hike rates soon, despite the potential to dent growth in the world’s biggest economy.

After a rollercoaster week for markets, bonds and energy, 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 effects on energy costs from a Middle East conflict that has broadened in the past days following 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 in the morning’s trading 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 closed higher, with Paris and Frankfurt both finishing up 0.8 percent after a volatile week.

“If you needed evidence that stock traders really don’t care about bonds and oil and things of that nature, you just have to look to the reactions of stocks yesterday and today,” said Steve Sosnick, chief strategist at Interactive Brokers.

Patrick O’Hare, chief market analyst at Briefing.com, however said that “arguably, the market has already been absorbing the likelihood of a rate hike” through the past week’s sell-off.

“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.

Any increase would put Fed chairman Kevin Warsh on a collision course with President Donald Trump, who has launched an unprecedented campaign against the Fed’s independence, demanding policymakers lower interest rates to spur economic activity.

“With the labour market still resilient and monthly core inflation firming, the Fed will find it harder to avoid a hike next week. Markets are pricing around a 90 percent probability, giving policymakers room to act without catching investors off guard,” said eToro US Investment Analyst Bret Kenwell.

James Knightley, chief international economist at ING, suggested however that the increase could be a one-off, “similar to the hike implemented by Alan Greenspan’s Fed in 1997”, rather than the first of a series of hikes that would draw Trump’s ire.

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 – especially with the Houthis cementing their hold on the Bab Al-Mandab strait, a vital shipping corridor linking Europe and Asia.

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 – and a potential headache for Trump ahead of November’s midterms.

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 stocks slumped across the board in the wake of Thursday’s heavy selling, with AI and other heavily indebted tech stocks hit as bond yields soared.

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.

- Key figures at around 1545 GMT -

Brent North Sea Crude: DOWN 2.7 percent at $104.72 per barrel

West Texas Intermediate: DOWN 3 percent at $99.46 per barrel

New York - Dow: UP 1 percent at 52,561.82 points

New York - S&P 500: UP 1.1 percent at 7,672.09

New York - Nasdaq: UP 1.3 percent at 26,425.54

London - FTSE 100: UP 0.4 percent at 10,650.44 (close)

Paris - CAC 40: UP 0.8 percent at 8,179.77 (close)

Frankfurt - DAX: UP 0.8 percent at 25,568.56 (close)

Tokyo - Nikkei 225: DOWN 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 153.49 yen from 154.34 yen on Thursday

Euro/dollar: DOWN at $1.1605 from $1.1609

Pound/dollar: UP at $1.3523 from $1.3510

Euro/pound: DOWN at 85.84 pence from 85.94 pence

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