Equity indexes drop, yields soar after US inflation data

by Jonathan Adams
investing to beat inflation

With rising costs for gasoline and shelter, the U.S. CPI rose 0.4% last month, in line with February

Treasury yields soared while equity indexes dipped on Wednesday after data showed U.S. consumer prices rose more than expected in March, diminishing hopes for how much and how soon the Fed can cut interest rates.

In currencies, the dollar index rose across the board after the data while the greenback reached its highest level against Japan’s yen since 1990, as traders watched to see if Japanese authorities would intervene to prop up the yen.

With rising costs for gasoline and shelter, the U.S. CPI rose 0.4% last month, in line with February, the Labor Department’s BLS said. This put the year-on-year rise at 3.5%.

After the report traders pulled back on rate cut bets now reflecting a roughly 17% probability the Fed will trim rates in June, down from a nearly 62% probability a week ago. They also pushed bets for a July cut closer to 41% from nearly 76% last week, as per CME Group’s FedWatch tool.

We are in this volatile sticky point right now where the Fed has not been able to say ‘we’ve won.’ They are going to want to see more data points to give them confidence they will achieve their 2% inflation target, according to Michael Hans, chief investment officer at Citizens Private Wealth.

Today does not do that. It continues to reinforce that a patient approach is still prudent, he added. The market is responding because there were much higher expectations coming into this data that there would be a reduction in June or July.

On Wall Street the DJIA dropped 422.16 points, or 1.09%, to 38,461.51. The S&P 500 shed 49.27 points, or 0.95%, to 5,160.64 and the Nasdaq Composite declined 136.28 points, or 0.84%, to close at 16,170.36.

MSCI’s gauge of stocks across the globe dropped 6.91 points, or 0.89%, to 772.32.

Earlier Europe’s STOXX 600 index closed 0.15% higher. The ECB meets on Thursday and is not expected to change its rate, though it had earlier been hinting that a June rate cut was likely.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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