Wall Street stocks fell and short-term Treasuries sold off on Wednesday after hotter-than-expected US inflation boosted expectations of aggressive interest rate hikes by the Federal Reserve.
The broad S&P 500 index fell 1.1% and the technology-focused Nasdaq Composite dropped 0.9%. The S&P Index has lost more than 20% so far this year.
US annual consumer price inflation rate reached 9.1% last month, data on Wednesday showed, exceeding consensus estimates with an increase of 8.8%. The monthly increase was 1.3%, up from 1% in May.
Incredibly high inflation in May increased pressure on the Fed to raise its benchmark interest rate by 0.75 percentage points in June, the highest level since 1994.
Currently, the US central bank’s main policy rate is in the target range of 1.5% to 1.75%. After reading inflation, the futures market reflects upgraded expectations of where rates will peak, currently pricing in a high of nearly 3.6% in February.
“While our base case remains a 75bp increase from the Fed in July, we cannot rule out the possibility of a larger 100bp increase or a further 75bp increase this month,” said analysts at Citi. ,” said analysts at Citi in a research note.
Florian Ielpo, head of macro at Lombard Odier Investment Managers, said: “The acceleration of the currency cycle is not yet behind us and we will have to wait until 2023 to see if the Fed considers a pause. “.
But Marco Pirondini, head of US equities at Amundi, says inflation is likely to peak in the summer, after recently Oil and commodities fell price reacts to recent weakness producer and consumer survey.
“At the end of the year, the inflation numbers will start to be much better than they are now, so [the Fed] there will be more space to balance inflation and growth,” he said.
In the government bond market, the yield on the benchmark 10-year US Treasury note rose 0.06 percentage points to 3.02% as a prolonged inflation outlook dampened demand for interest-paying assets. permanent. Bond yields increase as their prices fall.
The yield on the two-year Treasury note, which tracks interest rate expectations, rose 0.14 percentage points to 3.18%, reflecting the so-called inverted yield curve pattern that preceded the crises. Depression.
In currency terms, the euro fell below parity with the dollar for the first time in a short time in two decades. The dollar index, which measures the US currency against six other currencies, gained 0.1%, remaining near a two-decade high.
While many analysts are predicting a U.S. recession due to tightening financial conditions, fears of a recession are growing more intense in Europe, where governments are grappling with the prospect of a recession. Russia cuts off gas supplies.
The Stoxx Europe 600 share index – which has fallen nearly 16% so far this year in a wide-ranging global stock downturn as major central banks raise interest rates – builds on losses from 1.5% lower in early trading after data inflation. London’s FTSE 100 fell 1.1%.
Brent crude, the international oil benchmark, fell 0.7% to $98.8 a barrel on Wednesday, having fallen in the previous session as threats of a new coronavirus lockdown in China overshadowed concerns. supply due to Western sanctions on major producer Russia.