(Updates prices, adds commentary, changes byline, dateline)
By Sinéad Carew
NEW YORK, Feb 17 (Reuters) – Stock markets dropped around the globe on Friday and Treasury yields climbed while the dollar hit a six-week high after U.S. economic data prompted bets that the Federal Reserve would raise rates more than expected and keep them higher for longer to battle stubborn inflation.
Friday’s data showed a year-over-year 0.8% increase in export prices versus expectations for a decline of 0.2%. This added to the inflation concerns fuelled by Thursday’s data, which showed accelerating monthly producer prices in January and lower than expected unemployment benefits claims for last week.
Along with hawkish comments from two Fed officials on Thursday, and Goldman Sachs and Bank of America forecasts for three more Fed rate hikes this year, the data led some investors to start bracing for more tightening, according to Shawn Cruz, head trading strategist at TD Ameritrade in Chicago, Illinois.
“The thing that kicked this off yesterday was the producer prices coming in elevated. It means one or two things. Companies are going to pass the costs on to consumers, causing more inflation, or absorb these higher costs, which would result in lower profitability. Either way it’s not good,” said Cruz.
And while the Fed can potentially influence inflation domestically higher export prices points to things the U.S. central bank has less ability to control.
“That shows that global demand is coming back on line. That might make it a little bit more difficult to bring inflation down,” Cruz said.
Traders have raised their bets on how far they see the Fed hiking in recent sessions, and are now pricing in a peak at around 5.3% in September.
The Dow Jones Industrial Average fell 71.71 points, or 0.21%, to 33,625.14, the S&P 500 lost 36.37 points, or 0.89%, to 4,054.04 and the Nasdaq Composite dropped 157.65 points, or 1.33%, to 11,698.18.
The pan-European STOXX 600 index lost 0.23% and MSCI’s gauge of stocks across the globe shed 0.81%. Emerging market stocks lost 1.10%.
In U.S. Treasuries, with the market placing more bets on the Fed keeping rates higher for longer, yields on 10-year notes touched their highest level since early November at 3.929%.
Benchmark 10-year notes were recently up 1.6 basis points to 3.859%, from 3.843% late on Thursday. The 30-year bond was last up 1.7 basis points to yield 3.9207%, from 3.904%. The 2-year note was last was up 1.9 basis points to yield 4.6383%, from 4.619%.
While it since pared gains, the dollar hit a six-week high against a basket of currencies on Friday as traders ramp up bets for Fed rate hikes.
The dollar index was recently up 0.048%, with the euro down 0.07% to $1.0661.
The Japanese yen weakened 0.29% versus the greenback at 134.35 per dollar, while Sterling was last trading at $1.1993, flat on the day.
Oil futures fell sharply on Friday and was on course for a weekly decline, pressured by concerns of more U.S. Federal Reserve interest rate hikes that could weigh on demand, and signs of ample supply.
U.S. crude recently fell 2.89% to $76.22 per barrel and Brent was at $82.99, down 2.53% on the day.
Spot gold added 0.1% to $1,838.85 an ounce. U.S. gold futures fell 0.83% to $1,826.80 an ounce.
(Reporting by Sinéad Carew in New York, Nell Mackenzie in London; Editing by Yoruk Bahceli, Hugh Lawson and Sharon Singleton)