Markets: U.S. futures lower ahead of inflation data
Wall Street turned to losses early Friday ahead of the release of US consumer price data that could influence the Federal Reserve’s next interest rate policy decision.
Futures on the Dow Jones Industrial Average fell 0.6% and the S&P 500 fell 0.7%.
On Friday, the government will report US core consumer spending for January, also known as the PCE Price Index, which measures changes in prices of consumer goods and services, excluding food and energy. PCE is his Fed’s favorite inflation gauge and is expected to rise modestly as sharp inflation eases in response to easing supply chain problems and rising interest rates.
Last month’s PCE data showed prices eased further in December, rising 5% y/y last month, down from a 5.5% y/y rise in November. It was a three-game losing streak.
To beat 40 years of high inflation, the Fed has hiked interest rates at its last eight meetings dating back to March last year. This pushed the central bank’s key interest rate to his 4.5% to 4.75% range, the highest level in 15 years.
High interest rates especially affect the prices of investments that are considered to be the riskiest, most expensive, or that have significant future growth potential. It also increases the risk of a recession as the economy slows.
A long list of reports shows the U.S. economy is in a stronger-than-expected position, raising hopes that a recession can be avoided. But it has also forced Wall Street to raise its expectations of how high the Federal Reserve will raise interest rates and how long they will remain at them.
Fewer than expected workers filed for unemployment benefits last week, indicating continued resilience in the job market. According to another report, economic growth in the final three months of 2022 is likely to be slightly weaker than previous estimates. However, the US economy is still growing at an annual rate of 2.7%.
The rise in expectations for Wall Street rates and the Fed was most evident in the bond market this month as US Treasury yields surged. They eased a bit on Thursday, taking some pressure off the stock.
Yields on 10-year Treasuries, which help set rates on mortgages and other important loans, climbed to 3.91% early Friday from 3.89% late Wednesday. Earlier this week, it crossed 3.95%, close to its highest level since November.
Two-year US Treasury yields rose to 4.73% from 4.71% late Thursday.
In Europe, Germany’s DAX fell 0.6% and Paris’ CAC 40 fell 0.4%. The UK FTSE 100 was up 0.2%.
Japan reported in January that its core consumer price index, excluding volatile fresh food, rose for the first time in 41 years. But central bank governor-designated economist Kazuo Ueda told lawmakers he wanted Japan’s base rate to remain near zero to ensure stable growth.
Ueda is expected to succeed BOJ Governor Haruhiko Kuroda, who will step down in April after serving two five-year terms marked by unprecedented easing. Ueda tried to dispel such expectations, but his leadership change has led to speculation about a possible change to an ultra-accommodative monetary stance.
Wages in Japan have not kept pace with inflation, and fears of a possible global recession have made the Bank of Japan wary of changing course.
In parliament, Ueda said, “It will take time for the effects of monetary policy to appear,” and noted that inflation had reached its peak.
Tokyo’s Nikkei 225 index rose 1.3% to 27,453.48 and Australia’s S&P/ASX 200 rose 0.3% to 7,307.00.
In Hong Kong, the Hang Seng Index fell 1.7% to 20,010.04, while the Shanghai Composite Index rose 0.6% to 3,267.16. South Korea’s Kospi fell 0.6% to 2,423.61.
India’s Sensex fell 0.4%, while shares in Taiwan and Bangkok also fell.
In other trading on Friday, US benchmark crude rose 67 cents to $76.06 a barrel in electronic trading on the New York Mercantile Exchange.
Brent crude, the price benchmark for international trading, rose 65 cents to $82.60 a barrel.
US dollar rose to 135.62 yen from 134.70 yen. The euro fell from $1.0596 to $1.0578.
The S&P 500 rose 0.5% on Thursday, its first gain in five days, while the Dow Jones Industrial Average rose 0.3%. The Nasdaq Composite jumped 0.7%.
Kurtenbach reported from Bangkok. Ott reported from Silver Spring, Maryland. Contributed by Yuri Kageyama, AP Business Writer.