Global stocks mixed after US inflation feeds rate hike fears.
After the U.S. inflation rate fell less than expected, Asian stocks dropped and European markets opened mixed on Wednesday. This raises concerns that the Federal Reserve may increase interest rates.
London, Tokyo, and Shanghai all declined. Frankfurt advanced. Oil prices dropped by more than $1 per barrel
Wall Street futures fell after Tuesday’s official data showed that inflation decreased to 6.4% in January, compared with 6.5% the month before. This was higher than the 6.2% consensus expectation.
Core inflation, which excludes volatile food and energy prices, increased to 0.4% from 0.3% in December.
Edward Moya, Oanda’s director of research, stated that “disinflation trends” are at risk. He suggested that the Fed could increase rates and keep them higher for a longer time.
Early trading saw the FTSE 100 in London fall 0.1% to 7,946.73, while the DAX gained 0.4% to 15,441.24. The CAC 40 in Paris rose 0.7%, to 7,260.59.
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Futures on Wall Street for the benchmark S&P 500 index were down 0.3%, as was the Dow Jones Industrial Average.
The Dow dropped 0.5% and the S&P 500 fell less than 0.1% on Tuesday. The Nasdaq composite gained 0.6%
The Shanghai Composite Index fell 0.4% to 3,280.49 in Asia. Meanwhile, Tokyo’s Nikkei225 saw a 0.4% increase to 27,501.86. The Hang Seng in Hong Kong fell 1.4% to 20,812.17
Seoul’s Kospi fell 1.5% to 2,427.90, while Sydney’s S&P 200 dropped 1.1% to 7,352.20.
India’s Sensex lost 0.1% at 61.055.90. New Zealand grew while Southeast Asian markets fell.
Asian stocks are lower and European markets opened mixed after U.S. inflation edged down less than expected. That fueled concern the Federal Reserve might think more interest rate hikes are needed. London, Tokyo and Shanghai declined. Frankfurt advanced… https://t.co/Gfe3uPW45E
— KSTP (@KSTP) February 15, 2023
As traders attempt to determine how far the Fed or other central banks can go to end the spiraling inflation, stock prices have fluctuated over the past year. Some fear they may be prepared to plunge the global economy into recession.
Two more rate increases of 0.25 percentage point by the U.S. are expected to slow down business activity and decrease hiring. Many expect the cuts to begin as soon as this year’s end, despite Fed Chair Jerome Powell’s comments that rates may need to remain elevated for a longer time to reach their 2% target.
Clifford Bennett, ACY Securities, stated in a report that if inflation remains above 5.5%, then “that puts us on track for another four-to six Fed rate increases.”
Bennett stated, “Further reduction of consumer and business investment are a certainty.”
The Fed’s benchmark lending rates are now at 4.5% to 4.75%. This is an increase from the close to zero rate a year ago.
Investors are raising expectations about how high the key rate might rise by mid-2018. They expect a 19.2% chance that the key rate will rise to 5.5% by July. CME Group reported that this probability is now higher than the 0.2% it had a month earlier.
Yields in the bond market have risen due to higher expectations of the Fed.
The two-year Treasury has shot to its highest level since November, egged on last week by a stronger-than-expected report on the U.S. jobs market.
Late Monday’s two-year yield jumped to 4.61% from just 4.52%. The 10-year yield, which sets rates for mortgages and other loans in the future, increased to 3.75% from 3.70%.
Energy markets saw benchmark crude oil fall $1.30 to $77.76 a barrel in electronic trading at the New York Mercantile Exchange. On Tuesday, the contract dropped $1.08 to $79.06. Brent crude oil, which is the price basis for international oil trade, fell $1.26 to $84.32 per bar in London. It fell $1.03 to $85.58 in the previous session.
From Tuesday’s 133.06yen, the dollar gained to 133.43yen. From $1.0739, the euro fell to $1.0726.
