US equities fell further in three weeks and Treasury yields rose after an unexpectedly hot reading of consumer prices that boosted bets that the Federal Reserve will have to step up its battle against inflation.
The S&P 500 fell 2.9 percent, closing the second worst week of the year and the ninth weekly drop in the last 10, as fears escalated that efforts to fight inflation could stifle growth. Technology stocks suffered the brunt of Friday’s defeat, with the Nasdaq 100 falling more than three percent. Growth stocks from Cathie Wood’s flagship ETF to software developers and chip makers plummeted. A separate report showed that US consumer sentiment fell to a record high in early June, increasing pressure on the shares of airlines, casinos and hotels.
In the Treasury market, two-year yields exceeded three percent, a level not seen since 2008, while the movement of short rates left 30-year yields below five-year yields. years, indicating the risk that hardening will slow growth. Bitcoin fell below $ 30,000, the Cboe volatility index rose to $ 29 and the dollar advanced.
Rate traders raised their bets on Fed hikes, with three half-point increases likely during policy meetings in June, July and September, according to market-based prices. The central bank has indicated it will likely raise rates by 50 basis points when it meets next week.
The consumer price index rose 1% year-on-month and 8.6% year-on-year, beating all estimates. Housing, food and gas were the main contributors. The so-called core CPI, which eliminates the most volatile food and energy components, rose 0.6% from the previous month and 6% from a year ago, also above forecasts.
“It’s just bad,” said Dennis DeBusschere, founder of 22V Research. . front was massive in relation to the long end “.
Separately, the University of Michigan’s preliminary June sentiment index fell to 50.2 from May 58.4, according to data released Friday. The figure was weaker than all estimates from a Bloomberg survey of economists with an average forecast of 58.1.
Wall Street influences inflation, rates and stocks
- “From the Fed’s perspective, the chase continues, and more aggressive Fed measures are likely to be needed to catch up with rampant inflation,” wrote Charlie Ripley, senior investment strategist at Allianz Investment Management. in a note. “Whether this translates into more aggressive rises this summer or a continuation of 50 basis points rises this fall is the option for the Fed, but the general reality for the Fed is that inflation is out of control and they have their job, for them in the coming months ”.
- “One of the things we’ve seen in previous inflation readings is that the most sticky core components were starting to catch fire, and we saw that this was accelerating with the last basic impression,” said Max Gokhman, director of AlphaTrAI Investments “That means the Fed’s firefighters have to fight harder and that means the bulls can be burned.”
- “The CPI report is another reminder that equity markets will no longer be pampered by monetary policy,” John Lynch, investment director at Comerica Wealth Management, said in a statement. “We want volatility to continue until equity markets accept that the Fed’s target rate is at least 3.0% and not be obsessed with the magnitude of the incremental moves at upcoming policy meetings.”
- “Today’s report should extinguish any claim that a ‘pause’ in rate hikes is likely to be appropriate by the end of the summer,” said Jason Pride, Glenmede’s director of private wealth investment. a note. “Investors should expect the Federal Reserve to continue on its 50-bp rate hike next week and beyond until inflation shows significant signs of slowing toward the two to three percent target range. Fed “.
Some of the main movements in the markets:
Stocks
- The S&P 500 fell 2.9% at 4:00 p.m. New York time
- The Nasdaq 100 fell 3.6%.
- The Dow Jones Industrial Average fell 2.7%.
- The MSCI World Index fell 2.8%.
Coins
- The Bloomberg Dollar Spot index rose 0.8%.
- The euro fell 0.9% to US $ 1.05
- The British pound fell 1.4% to $ 1.2312
- The Japanese yen fluctuated slightly to $ 134.38
Good
- 10-year Treasury bond yields advanced 11 basis points to 3.15%
- Germany’s 10-year yield advanced nine basis points to 1.52%.
- The 10-year yield on the UK advanced 12 basis points to 2.45 per cent
Goods
- West Texas Intermediate crude fell 0.7% to $ 120.61 a barrel
- Gold futures rose 1.3% to $ 1,876.50 an ounce