Stocks fall, US yields and dollar jump after inflation data

NEW YORK: U.S. Treasury yields and the dollar climbed on Thursday, while a gauge of global stocks stumbled after a stronger than expected reading on U.S. inflation cast doubt on the timing and magnitude of interest rate cuts from the Federal Reserve this year.

The producer price index (PPI) for final demand rose 0.6 per cent last month, above the 0.3 per cent climb forecast by economists polled by Reuters, after advancing by an unrevised 0.3 per cent in January, the Labor Department said.

A reading on consumer inflation earlier this week also showed some stickiness in inflation.

Other data showed U.S. retail sales rebounded last month with a 0.6 per cent rise, but were below the 0.8 per cent estimate, while weekly initial jobless claims fell to 209,000 versus the 218,000 forecast.

"Fed confusion - where we started with 'Oh my God, they're going to cut six times or eight times this year,' now it's 'They're definitely going to cut three times this year,'" said JJ Kinahan, CEO of IG North America and president of Tastytrade in Chicago.

"What people are seeing in the inflation numbers, what it looks like is starting to maybe turn a little bit on job numbers, there's just all this conflicting data so what the easiest thing to do is to not do a lot."

The Dow Jones Industrial Average fell 137.66 points, or 0.35 per cent, to 38,905.66, the S&P 500 lost 14.83 points, or 0.29 per cent, to 5,150.48 and the Nasdaq Composite shed 49.24 points, or 0.30 per cent, to 16,128.53.

Ahead of a Fed policy meeting next week where a rate cut has been essentially ruled out, the market has trimmed the odds of a cut at the June meeting, with expectations for a cut of at least 25 basis points at 59.9 per cent, according to CME's FedWatch Tool, down from 81.7 per cent a week ago.

The yield on benchmark U.S. 10-year notes jumped 9.8 basis points to 4.29 per cent, from 4.192 per cent while the 2-year note yield, which typically moves in step with interest rate expectations, rose 6.9 basis points to 4.6914 per cent.

The 10-year yield was poised for its biggest one-day increase since Feb. 13.

MSCI's gauge of stocks across the globe fell 2.75 points, or 0.35 per cent, to 772.53, while the STOXX 600 index closed down 0.18 per cent after hitting a third straight intraday record high. Europe's broad FTSEurofirst 300 index shed 3.37 points, or 0.17 per cent.

The Bank of Japan also meets next week. Officials including Governor Kazuo Ueda have sought to temper expectations of an imminent shift out of negative interest rates, which has set the yen on course for its worst weekly performance in a month.

The dollar index gained 0.53 per cent at 103.29, with the euro down 0.5 per cent at US$1.0891.

Against the Japanese yen, the dollar strengthened 0.32 per cent at 148.22. The Japanese currency had briefly firmed against the greenback after Jiji news agency reported the Bank of Japan had started to make arrangements to end its negative interest rate policy at the March 18-19 meeting.

Investors have been pricing in the chance of a change in policy this month, particularly after news of big pay hikes from some of Japan's biggest companies at this year's annual wage negotiations.

In commodities, U.S. crude settled up 1.93 per cent at US$81.26 a barrel and Brent settled at US$85.42 per barrel, up 1.65 per cent on the day, the highest settlement price since Nov. 6, after the International Energy Agency's (IEA) latest oil market report predicted a tighter market in 2024. - Reuters

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