Wall Street equity indexes all opened in the red and Treasury yields spiked 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 indexes all opened in the red and Treasury yields spiked 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. After the data release, Federal Reserve Bank of Cleveland President Loretta Mester said in prepared remarks that she saw a “compelling economic case” for rolling out another 50 basis-point hike earlier this month.
Wednesday’s stock rallies were erased as S&P 500 Index and Nasdaq 100 each fell more than 0.8%. Yield on the benchmark 10-year Treasury rose to 3.85%, the highest level this year.
The data picture was mixed. New US home construction retreated for a fifth month in January as elevated mortgage rates continue to keep a lid on housing demand, but weekly jobless claims fell to 194,000, below expectations of 200,000.
“Overall, layoffs remain low, suggesting companies remain reluctant to reduce their workforce for now,” wrote Rubeela Farooqi, chief US economist at High Frequency Economics. “A rapid rise in interest rates has yet to impact the labor market. But an adjustment is likely over coming months as the cumulative and lagged effects of restrictive monetary policy spread more broadly through the economy.”
Thursday’s data add further details for Fed policymakers plotting the path for rate hikes, after Wednesday’s US retail sales in January jumped by the most in almost two years.
“This data was just a reminder that the battle against inflation is not easy,” Peter Boockvar, chief investment officer at Bleakley Financial Group, wrote. “Cost pressures basically got into every single nook and cranny of the economy over the past few years and it doesn’t just magically disappear, especially as many companies are still trying to recover lost profit margins.”
Investors have been upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing to 5.25% 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.
“You will not sustainably get to 2% inflation when you have a labor market that is this tight,” Steve Chiavarone, senior portfolio manager and head of multi-asset solutions at Federated Hermes, said by phone. “It is so completely out of whack.”
Read More: US Rate Hikes Threaten to Outstrip Fed, Wall Street Predictions
Europe’s Stoxx 600 Index pared its gains following the US data, after hitting the highest level in a year. 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.
Bitcoin optimism continued, as it rose as much as 3% to approach $25,000. This followed Wednesday’s 8.7% jump, which was the most in three months.
Oil remained within a 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:
- France CPI, Russia GDP Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.8%, more than any closing loss since Feb. 9 as of 10:30 a.m. New York time
- The Nasdaq 100 fell 0.9%, more than any closing loss since Feb. 9
- The Dow Jones Industrial Average fell 0.9%, more than any closing loss since Jan. 18
- The Stoxx Europe 600 was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.2% to the highest since Jan. 6
- The euro fell 0.1% to $1.0673
- The British pound fell 0.3% to $1.1997
- The Japanese yen was little changed at 134.17 per dollar
Cryptocurrencies
- Bitcoin rose 1.5% to the highest in about eight months
- Ether rose 1.3% to the highest since Sept. 12
Bonds
- The yield on 10-year Treasuries advanced three basis points to 3.84%
- Germany’s 10-year yield advanced two basis points to 2.50%
- Britain’s 10-year yield advanced three basis points to 3.52%
Commodities
- West Texas Intermediate crude was little changed
- Gold futures fell 0.2% to $1,841.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sagarika Jaisinghani and John Viljoen.
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