On Thursday, financial markets responded to unexpected U.S. inflation data, affecting Treasury yields, the dollar, and global stocks.
The U.S. Treasury yields and the dollar saw an increase, while a key indicator of global stocks experienced a decline following a report on U.S. inflation that exceeded forecasts.
This development raised questions about the Federal Reserve’s potential interest rate adjustments for the year.
The Labor Department revealed that the producer price index (PPI) for final demand rose by 0.6% in the previous month, surpassing the 0.3% increase predicted by economists surveyed by Reuters.
This followed a 0.3% rise in January.
Additionally, a report earlier in the week indicated a persistent inflation trend in consumer prices.
Other economic indicators showed mixed signals. U.S. retail sales saw a rebound with a 0.6% increase, although this was below the expected 0.8%.
Meanwhile, the number of initial jobless claims dropped to 209,000, defying the anticipated 218,000.
JJ Kinahan, CEO of IG North America and president of Tastytrade, commented on the uncertainty surrounding the Federal Reserve’s policy decisions, noting the conflicting economic data and its impact on rate cut expectations.
The market’s reaction included declines in major U.S. stock indices: the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all recorded losses.
With a Federal Reserve policy meeting approaching, the likelihood of a rate cut has been significantly reduced, particularly for the June meeting, as indicated by CME’s FedWatch Tool.
This sentiment was reflected in the yields for U.S. Treasury notes, with notable increases in both the 10-year and 2-year yields.
Global stock markets also felt the impact, with the MSCI global stock gauge and European indices such as the STOXX 600 and the FTSEurofirst 300 experiencing declines.
The Bank of Japan’s upcoming meeting also drew attention, with speculation about a policy shift affecting the yen’s performance.
Currency markets saw the dollar strengthening against the euro and the Japanese yen, partly influenced by reports suggesting the Bank of Japan might end its negative interest rate policy.
In the commodities sector, oil prices increased, with U.S. crude and Brent crude reaching their highest settlement prices since early November, amid predictions of a tighter market in 2024 by the International Energy Agency (IEA).