Stocks Drop, Dollar and Yields Rise After U.S. Inflation Data
Stock Market Reaction to U.S. Inflation Data
World stock market indexes fell, and the U.S. dollar hit three-month peaks while Treasury yields climbed on Tuesday. This occurred after data showed U.S. inflation slowed less than expected in January.
Impact on Federal Reserve Rate Expectations
The U.S. consumer price index report reinforced expectations that the Federal Reserve will hold interest rates steady in March. Investors reined in bets on how much the Fed will cut rates this year.
Expert Opinion on Market Reaction
According to Carol Schleif, chief investment officer at BMO Family Office in Minneapolis, Minnesota, “Markets are taking it pretty hard because it puts a nail in the coffin of early (March) Fed rate cuts. It’s evidence of a still-sturdy economy. There’s still inflation to be wrung out of the system.”
Stock Market Performance
The Dow Jones Industrial Average fell 523.80 points, or 1.35%, to 38,273.58; the S&P 500 lost 70.53 points, or 1.40%, to 4,951.31; and the Nasdaq Composite lost 279.58 points, or 1.75%, to 15,662.96.
Global Equity Index and European Market Performance
The MSCI world equity index, which tracks shares in 49 nations, lost 1.21%. The Europe-wide Stoxx 600 index was last down 1.2%, having traded 0.47% lower before the data.
U.S. Inflation Data and Expectations
The consumer price index increased 0.3% last month after gaining 0.2% in December. Annual revisions to the CPI data published last Friday were mixed, but generally showed inflation was on a downward trend after surging in 2022.
Impact on Currency and Bond Markets
The greenback surged to 150.58 yen, a three-month peak. The dollar was last up 0.72% against the yen at 150.42, while the euro was down 0.5% on the day at $1.0718. The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, also touched a three-month high after the data, and was last up 0.5% at 104.68. The yield on benchmark 10-year Treasury notes rose to 4.2691% compared with its U.S. close of 4.17% on Monday.
Investor Expectations and Oil Prices
- Investors on Tuesday were pricing in around 94 basis points of cuts from the Fed by the end of the year, down from around 112 before the data.
- They saw a 40% chance of the first cut coming by May, compared with 71% previously, according to money market pricing.
Brent crude oil prices rose to $82.57 per barrel. Gold prices fell to $2,000.19 an ounce.
