After a brief, but sharp flurry of negative futures market reaction to the latest US consumer price inflation (CPI) data, Wall Street indices moved higher in morning trade, helping stocks in Europe to add to their morning gains.
Meanwhile, the dollar, which had seen an initial boost on the strong CPI print also gave up its gains as equity markets in New York were moving higher.
Consumer price index
The data showed US headline CPI rose by an annual rate of 2.1% in January - the same rate as in December - defying forecasts of a slip back to 1.9%.
Core inflation - excluding volatile food and energy prices - was also stronger than expected, rising by an annual rate of 1.8% in January - also the same as in December - and defying expectations of a dip to 1.7%.
"This is a strong number, said Luke Bartholomew at Aberdeen Standard Investments. "There’s a risk that this could pour fuel on the fire of last week’s market sell off."
Indeed, it initially did. US stock index futures sold off sharply, while the S&P 500 index opened 0.6% lower and the dollar was boosted nearly 0.5% versus the euro.
"Monetary policy is still likely to depend on first quarter US GDP data but if it proves to be as strong as some suggest, the Fed well take a significantly more hawkish path back to normal interest rates than expected, especially if inflation continues to creep up," said Jacob Deppe at online trading platform Infinox.
However, after a few moments of trade, investors took stock of the other data published on Wednesday morning and pushed stocks higher.
After about an hour of trade, the Dow Jones Industrial Average was up 0.2% at 24,750, while the S&P 500 added 0.34% to 2,672 and the Nasdaq Composite climbed 0.79% to 7,069.
Meanwhile, the dollar gave back its gains and stood 0.12% lower against the euro at $1.2371.
Retail sales data appeared to have something of a calming effect as the data showed US consumer activity slowed in January.
Month-on-month in January sales fell 0.3% after a 0.4% gain in December, defying analyst expectations of a 0.2% gain.
"The numbers were hit by a bigger drop in auto sales than was implied by the manufacturers' volume numbers, and a 2.4% plunge in sales of building materials, mean-reverting after their post-hurricane leap," said Ian Shepherdson at Pantheon Macroeconomics.
In Europe, stock indexes had a volatile afternoon, reacting first to the inflation data and US futures market losses, then climbing back to session highs following the recovery on Wall Street.
Although stocks recovered, the afternoon's price action showed markets remained sensitive to economic news and the threat of higher interest rates.