Wall Street equity futures extended their decline after data showed US producer prices rebounded in January by more than expected, underscoring persistent inflationary pressures that could push the Federal Reserve to pursue further interest-rate increases.
(Bloomberg) — Wall Street equity futures extended their decline after data showed US producer prices rebounded in January by more than expected, underscoring persistent inflationary pressures that could push the Federal Reserve to pursue further interest-rate increases.
The producer price index for final demand jumped 0.7% last month, the most since June, and was up 6% from a year earlier, bolstered by higher energy costs, according to data out Thursday from the Bureau of Labor Statistics. In a mixed data picture on Thursday, new US home construction retreated for a fifth month in January as elevated mortgage rates continue to keep a lid on housing demand. Weekly jobless claims fell to 194,000 against expectations of 200,000.
Contracts for the S&P 500 and Nasdaq 100 were down by at least 0.9%. Shopify Inc. dropped as much as 9.7% in premarket trading after the cloud-based commerce platform’s first-quarter revenue forecast was weaker than expected. Cisco Systems Inc. gained after the communications equipment company raised its full-year outlook.
A gauge of dollar strength was steady. The yield on the benchmark 10-year Treasury was little changed after increasing by six basis points on Wednesday.
Stock investors have been encouraged by upbeat earnings reports and evidence of resilience in the economy combined with signs that inflation, even if it remains too high, is at least receding. Thursday’s data add further detail for Fed policymakers plotting the path for rate hikes, after US retail sales in January jumped by the most in almost two years and homebuilder sentiment rose in February.
UBS Global Wealth Management strategists said that although they expect an inflection point in monetary policy, inflation and market sentiment in 2023, it’s still too early to forecast a dovish pivot from the Fed. Chief Investment Officer Mark Haefele wrote in a note that “certain measures of inflation are moving in the wrong direction,” while a strong labor market is adding to concerns that wage growth will remain very high.
Meanwhile, investors are upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing to 5.2% in July, according to trading in the US money markets. That compares with a perceived peak rate of 4.9% just two weeks ago, and the central bank’s current 4.5% to 4.75% target range.
US Rates May Be Heading Higher Than Wall Street or the Fed Think
Europe’s Stoxx 600 Index pared its gains following the US data, after hitting the highest level in a year. Standard Chartered Plc rose as the emerging-markets focused lender announced a buyback and forecast higher returns. British Gas owner Centrica Plc rallied after its record profit.
France’s CAC 40 index headed toward a record close for the first time in more than a year, powered by renewed strength in luxury names thanks to China’s reopening from Covid lockdowns as well as robust earnings. Pernod Ricard SA jumped after the French spirits company’s results comfortably beat expectations and it announced a buyback of its own.
A rally in risk assets has helped propel higher some of the most speculative corners of the market. A Goldman Sachs Group Inc. benchmark of unprofitable tech companies rose 4.4% and is up almost 30% this year.
Bitcoin rose further after jumping 8.7% Wednesday, the most in three months, edging closer to the $25,000 level and sparking gains in cryptocurrency-exposed stocks in New York premarket trading.
“Everybody is trying to figure out whether this is going to be a once-in-a-lifetime soft landing or if it’s just taking longer before we get a panic recession,” Jerry Braakman, chief investment officer of First American Trust, said in an interview. “That’s why you’re seeing a lot of divergence between bulls and bears.”
Oil remained within a recent narrow range as investors assessed more evidence of higher energy demand in China and a large build in US crude stockpiles. Gold was steady.
Key events:
- US jobless claims, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday
- France CPI, Russia GDP Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.9% as of 8:42 a.m. New York time
- Nasdaq 100 futures fell 1.1%
- Futures on the Dow Jones Industrial Average fell 0.6%
- The Stoxx Europe 600 was little changed
- The MSCI World index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0684
- The British pound fell 0.2% to $1.2007
- The Japanese yen was little changed at 134.10 per dollar
Cryptocurrencies
- Bitcoin rose 1.4% to $24,520.05
- Ether rose 0.9% to $1,681.33
Bonds
- The yield on 10-year Treasuries was little changed at 3.81%
- Germany’s 10-year yield advanced three basis points to 2.50%
- Britain’s 10-year yield advanced three basis points to 3.51%
Commodities
- West Texas Intermediate crude fell 0.2% to $78.40 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sagarika Jaisinghani.
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