Investors now expect the Fed to first cut its interest rate in June or even July
Wall Street stocks fell sharply on Tuesday after unexpectedly strong US inflation data raised prospects that the Fed will keep interest rates high for longer than previously expected. The report showed that the consumer price index rose 0.3% in January, up from a 0.2% increase the previous month. Compared with a year ago, prices were up 3.1%, well above forecasts for a 2.9% increase. Investors now expect the Fed to first cut its interest rate in June or even July. Against this backdrop, the S&P 500 tumbled 1.4%, the Dow Jones dropped 1.4%, and the Nasdaq Composite sank 1.8%. During the previous session, the Dow notched a record-high close.
Asian equities finished mostly lower on Wednesday, tracking a negative lead from Wall Street. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8% to notch a fifth straight day of losses. Japan’s benchmark Nikkei 225 shed 0.8% to 37,646.37. Australia’s S&P/ASX 200 dipped 0.74%, South Korea’s Kospi fell 1.1%, and Japan’s benchmark Nikkei 225gave up 0.60%. Bucking the trend, Hong Kong’s Hang Seng edged 0.84% higher. The index resumed trading after the Lunar New Year holiday. Markets in mainland China remain closed all week.
In Europe, stocks saw a muted trading at the open on Wednesday. The pan-European Stoxx 600 index inched 0.2% higher in early trade after finishing down 0.1% during the previous session. The FTSE 100 index advanced 0.25% after the data showed that UK inflation held steady at 4% year-on-year last month. On a monthly basis, the headline consumer price index fell to -0.6%, returning to negative territory after a jump by 0.4% in December. In individual stocks, ABN Amro shares rallied more than 6% after the bank exceeded profit expectations in the fourth quarter.
Meanwhile, the dollar has steadied after yesterday’s rally to fresh mid-November highs just below the 105.00 figure that represents the immediate upside barrier at this stage. The USD index jumped along with Treasury yields amid strong inflation data that made traders pare back expectations for the pace of rate cuts by the Federal Reserve this year. The yield on the 10-year Treasury note jumped to 4.32%, its highest level since late November. Now, the greenback needs some more impetus to challenge the 105.00 barrier on the way to fresh highs. On the downside, the nearest support arrives around 104.50.