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GLOBAL MARKETS-Stocks slide, dollar gains on hot U.S. inflation data

reuters.com · 06/10/2022 11:09
GLOBAL MARKETS-Stocks slide, dollar gains on hot U.S. inflation data

Adds fresh prices, comment

By Herbert Lash

- U.S. and European stocks slid while the dollar strengthened on Friday after hot U.S. consumer price data for May raised the likelihood that the Federal Reserve will prolong an aggressive campaign of hiking interest rates to tame inflation.

The consumer price index accelerated 1.0% last month after gaining 0.3% in April, the Labor Department said. Economists polled by Reuters had forecast monthly CPI picking up 0.7%. nL1N2XX118

Some economists and market participants had expected the data to show inflation had peaked in May, but the report indicated otherwise as gasoline prices hit a record high and the cost of food soared.

"It was pretty hot. This report suggests that underlying inflation pressures remain quite strong," said Aichi Amemiya, senior U.S. economist at Nomura.

The dollar rose to a near four-week high against a basket of currencies while U.S. Treasury prices tumbled and intermediate-dated yields rose to their highest levels in more than a decade.

Stocks on Wall Street and in Europe fell more than 2% as investors feared central bank efforts to control inflation will be so harsh it will slow growth and squeeze corporate earnings.

The pan-European STOXX 600 index .STOXX slid 2.69% and MSCI's gauge of global equity markets .MIWD00000PUS shed 2.42%.

On Wall Street, the Dow Jones Industrial Average .DJI fell 2.06%, the S&P 500 .SPX lost 2.37% and the Nasdaq Composite .IXIC dropped 3.01%.

The stronger-than-expected CPI data has changed the calculus for what the Fed does in September after "most-assuredly" raising rates 50 basis points next week and in July, said Art Hogan, chief market strategist at National Securities.

"The wagering on September had been 50-50 between a 25 basis points to a 50 basis points hike, and now this has definitely shifted to 50 basis points," Hogan said.

Investors expect the Fed to raise rates by 50 basis points next week and in July, but Nomura's Amemiya didn't see the possibility of a 75 basis point hike next week.

Concerns also mounted about demand and growth in China, the world's second-largest economy, after Shanghai and Beijing went back on fresh COVID-19 alerts on Thursday and imposed new lockdown restrictions. nL1N2XW01L

The yen rose off of 20-year lows after Japanese policymakers made rare comments about its weakness. Japan's government and central bank said they were concerned by recent sharp falls in the yen in a rare joint statement, the strongest warning to date that Tokyo could intervene to support the currency. nT9N2XH02A

The yen has been ploughing 20-year lows against the dollar and seven-year troughs against the euro EURJPY= on expectations the BOJ will continue to lag other major central banks in exiting its stimulus policy.

The Japanese currency strengthened 0.15% to 134.15 per dollar, while the euro weakened 1.03% against the yen.

The dollar index =USD rose 0.784%, with the euro EUR= down 0.88% to $1.0521.

Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.9%.

Continued strong buying by foreign investors and cautious hopes of regulatory easing on tech firms lifted China stocks, despite lockdown alerts.

China's blue-chip CSI300 index .CSI300 was up 1.5%, while Hong Kong shares .HSI trimmed earlier losses to end off 0.2%.

Despite slipping on China's new COVID-19 alerts and the U.S. inflation data, crude oil prices remained on track for another weekly gain due to solid demand for fuels in the United States.

U.S. crude CLc1 was down 1.08% to $120.20 per barrel and Brent LCOc1 was at $121.58, down 1.21% on the day.

Spot gold XAU= added 0.4% to $1,854.60 an ounce.

World FX rates YTDhttp://tmsnrt.rs/2egbfVh

Global asset performancehttp://tmsnrt.rs/2yaDPgn

Asian stock marketshttps://tmsnrt.rs/2zpUAr4

How ECB rate-hike expectations have shifted this weekhttps://tmsnrt.rs/3aHIEWK

(Reporting by Herbert Lash; Editing by Chizu Nomiyama, Kirsten Donovan)

((herb.lash@thomsonreuters.com; 1-646-223-6019; Reuters Messaging: herb.lash.reuters.com@reuters.net))

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