S&P 500 futures rose 0.5% in a bumpy Asia session
Stocks fell and the dollar held firm on Thursday as data showed U.S. inflation persistently high, and investors worried about the economic toll of aggressive interest rate hikes to tame it.
U.S. markets whipsawed after the news, then closed sharply lower. S&P 500 futures rose 0.5% in a bumpy Asia session. Foreign exchange trade was also volatile, but has left the dollar index within a whisker of a two-decade high.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1%. Japan’s Nikkei fell 1%.
Headline U.S. consumer prices rose 8.3% for the 12 months to April. That was slower than the 8.5% pace of a month earlier and raised hopes that the pace of price rises has peaked. However, it was also higher than market forecasts for 8.1%, and reaffirmed concerns that rates will need to rise quickly to tame it.
We’re now very much embedded with at least two further hikes of 50 basis points on the agenda. For equity markets that really is the end of free money, said Damian Rooney, director of institutional sales at brokerage Argonaut in Perth.
I think we probably were delusional six months ago with the rise of U.S. equities on hopes and prayers and the madness of the meme stocks, and suddenly were going a little bit back to what is reality, he said.
Apple shares fell 5% overnight, dragging the S&P 500 down 1.65% and the Nasdaq down 3.2%.
Short-dated Treasuries were dumped in the wake of the data, but the longer end of the curve rallied as investors worried steep rate hikes would slam the brakes on growth.
The benchmark 10-year Treasury yield fell six basis points (bps) overnight and dropped a further four bps in Tokyo trade to 2.8877%. The gap between two-year and 10-year yields narrowed, flattening the yield curve.
There should be a tipping point in how far the Fed can be pressed before odds clearly point towards a hard landing, said NatWest Markets’ U.S. rates strategist Jan Nevruzi.