Treasuries also drop after report showing US consumer price growth edged down to 8.3% in April
Wall Street stock futures and Treasury prices turned lower after a fresh round of data showed the US inflation rate eased by a slimmer than expected margin last month.
Contracts tracking the blue-chip S&P 500 share index shed their gains following Wednesday’s report, leaving them down around 0.7 per cent on the day. Those on the technology-heavy Nasdaq 100 fell 1.2 per cent.
In fixed income markets, the monetary policy sensitive two-year Treasury yield raced 0.1 percentage points higher to 2.72 per cent, according to Tradeweb data. Longer-dated Treasuries also came under pressure, with the 10-year yield recently up 0.06 percentage points to 3.05 per cent.
Consumer prices in the world’s largest economy rose at an annual rate of 8.3 per cent in April, down from a 40-year high of 8.5 per cent in March. The figure exceeded economists’ expectations for a cool-down to 8.1 per cent.
Months of elevated consumer price readings pushed the US Federal Reserve to raise its main interest rate by 0.5 percentage points last week, while it is widely expected to implement similar-sized increases at its upcoming meetings in June and July.
There was “a lot of hope in the market,” about getting into a cycle of [inflation]coming in lower than expected,” Guillaume Paillat, multi-asset portfolio manager at Aviva Investors, said ahead of the data release.
A downturn in global stock markets had eased ahead of the US inflation reading as traders sensed that price rises — driven by disruptions to supply chains from China’s coronavirus lockdowns and higher fuel and food costs from Russia’s invasion of Ukraine — were set to peak.
Chinese official data released earlier on Tuesday showed that factory gate prices in the exporting nation climbed 8 per cent year on year last month, in a slight deceleration from an 8.3 per cent rise the month before.
Investors and analysts on Wednesday cautioned that even if inflation had now peaked, it could remain elevated for some time, pushing central banks to continue raising borrowing costs. The Fed targets an average inflation rate of 2 per cent over time.
“It is not just about inflation peaking, but also the trajectory going forward,” said Aneeka Gupta, research director at exchange traded fund provider WisdomTree. “We believe it is going to be a long, drawn-out process back to levels where central banks are comfortable.”
US inflation “is still likely to overshoot the Fed’s target over the next couple of years and require further hikes beyond the aggressive repricing now expected by markets”, said Tim Drayson, US economist at Legal & General Investment Management.
Markets expect the Fed’s funds rate, at present set at between 0.75 per cent and 1 per cent, to reach 2.8 per cent by the end of this year.
Wednesday’s market moves followed a turbulent prior session on Wall Street, in which the S&P 500 switched between gains and losses as investors debated buying into a market downturn that has sent the blue-chip stock gauge 16 per cent lower this year.
Elsewhere in markets, Europe’s Stoxx 600 share index rose 0.4 per cent, after rallying ahead of the inflation data.
In Asia, mainland China’s CSI 300 share index added 1.4 per cent and Japan’s Nikkei 225 closed 0.2 per cent higher.
Brent crude, the international oil marker, added 2.9 per cent to $105.45 a barrel.
