The stock market is experiencing a downturn on Wall Street following the release of inflation data in the U.S. that surpassed expectations.
Shortly after the Labor Department’s report, S&P 500 futures dropped by 1.1%, with Dow futures down 0.8% and Nasdaq futures falling by 1.6%. Concurrently, there was a notable increase in bond yields.
According to the report, consumer prices in January rose by 3.1% compared to a year ago, exceeding economists’ forecasts of a 2.9% increase. This stronger-than-expected inflation reading comes amidst recent reports indicating the continued strength of the U.S. economy and job market. Consequently, traders have adjusted their predictions for when the Federal Reserve might initiate interest rate cuts.
Inflation, which peaked above 9% in June 2022, had been showing signs of moderation, prompting suggestions from the Fed of multiple interest rate cuts this year. Such actions typically stimulate financial markets and the economy, alleviating pressure resulting from the Fed’s raising of its main interest rate to its highest level since 2001.
Bond market reactions were pronounced, with the yield on the 10-year Treasury jumping from 4.16% to 4.26%, while the two-year Treasury yield, closely linked to expectations for Fed policy, rose from 4.48% to 4.60%.
Following the U.S. inflation report, European benchmarks also experienced declines. France’s CAC 40 slipped by 0.4%, Germany’s DAX shed 0.5%, and Britain’s FTSE 100 fell by 0.2%.
In contrast, Asian markets mostly saw gains, with Japan’s Nikkei 225 rising by 2.9% to briefly surpass 38,000 for the first time in 34 years. Australia’s S&P/ASX 200, initially higher, ended 0.2% lower, while South Korea’s Kospi climbed by 1.1%.
Notably, markets in China, Hong Kong, and Taiwan were closed for the Lunar New Year holiday.
In energy markets, benchmark U.S. crude increased by 67 cents to $77.59 a barrel, while Brent crude, the international standard, rose by 59 cents to $82.63 a barrel in electronic trading on the New York Mercantile Exchange.
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