US stocks fell on Thursday after the latest evidence of stubborn inflationary pressures in the world’s largest economy fuelled concerns about the Federal Reserve keeping interest rates high to curb price rises.
The blue-chip S&P 500 closed down 1.4 per cent, marking its worst day in almost a month, while the tech-heavy Nasdaq Composite lost 1.8 per cent.
Those moves in equity markets came after the US producer price index, which tracks wholesale prices, rose at an annual rate of 6 per cent in January, down from 6.2 per cent in December but well above the consensus estimate of 5.4 per cent.
Investors have been watching closely for signs of persistent inflation and a still-hot US economy, with recent data already pushing up the level at which interest rates are expected to peak and reducing the number of Fed rate cuts that markets are pricing in for later this year.
“Strong producer prices to start the year in January highlight that there remain strong underlying inflationary pressures, particularly due to a still-tight labour market and very strong wage growth over the last few years,” said analysts at Citi.
Thursday’s declines followed slight gains in the previous session as investors took in their stride stronger than expected retail sales that were expected to boost corporate earnings.
“The difference today is that the narrative has turned towards inflation,” said John Roe, head of multi-asset funds at Legal and General Investment Management. “Positive growth implies a soft landing whereas stubborn inflation points towards a no-landing and the risk of tighter monetary policy.”
The dollar index, which measures the greenback against a basket of peer currencies, eased 0.1 per cent. In government bond markets, the policy-sensitive two-year Treasury yield rose 0.02 percentage points to 4.64 per cent, reflecting a fall in price, while the benchmark 10-year yield rose 0.06 percentage points to 3.86 per cent.
Europe’s benchmark Stoxx 600 share index and Germany’s Dax both finished 0.2 per cent higher. France’s CAC 40 was a standout performer, rising 0.9 per cent to touch a record intraday high.
The UK’s FTSE 100 rose 0.2 per cent to close above 8,000 points for the first time.
Some economists are concerned that signs of economic strength will encourage the main central banks to press on with more interest rate increases to stamp out lingering inflation. European Central Bank President Christine Lagarde on Wednesday addressed EU lawmakers and stressed the need for more interest rate rises.
Brent crude, the international benchmark, gave up earlier gains to trade 0.3 per cent lower at $85.06 a barrel and WTI, the US benchmark, fell 0.2 per cent to $78.43 a barrel.
Hong Kong’s Hang Seng index rose 0.8 per cent, while China’s CSI 300 lost 0.7 per cent.