Stocks tumble after key US inflation data – Economy – Business
File photo: Trader Gregory Rowe works on the floor of the New York Stock Exchange at the end of the trading day. PA
The data bolstered expectations of further interest rate hikes, helping to push the dollar higher, including hitting its highest level against the Japanese yen since 1990.
Consumer prices in the United States rose 0.4% in September from August, double the 0.2% forecast by analysts even as the annual increase in the consumer price index consumption slowed slightly to 8.2% from 8.3%.
But core inflation, excluding energy and food price volatility, rose to 6.6% from 6.3% in August.
The US Federal Reserve has raised interest rates to an aggressive 0.75 percentage points in its last three meetings and has announced its intention to continue to do so until runaway inflation is brought under control.
This has caused stock prices to fall in recent months as higher interest rates will reduce consumer purchasing power.
Last month saw a brief rally in equities after data suggested the US economy was slowing as investors hoped it would allow a “pivot” by the Fed to a slower pace of interest rate hikes.
“The strong CPI only reinforces the idea that there’s no way the Federal Reserve is looking at a ‘pivot’ this year,” said Stephen Innes of SPI Asset Management.
Wall Street stocks plunged at the open, with the Dow Jones falling 1.1%. The S&P 500 fell 2.1% and the tech-heavy Nasdaq Composite fell 2.8%.
European stocks, which had drifted higher ahead of the US inflation data, fell. Frankfurt lost 1.1% and Paris 1.6%.
The FTSE 100 in London fell 1.3% as media speculated the government could cut fiscal stimulus and raise corporate taxes in its latest policy U-turn.
But speculation caused the pound to jump 1.4% against the dollar. Meanwhile, the yield on 30-year UK government bonds fell to 4.63% and the 10-year to 4.31%.
The ten-year yield hit 4.64% on Wednesday, the highest since the 2008 global financial crisis and above the level that prompted the BoE’s recent intervention in the bond market.
Oil prices tumbled after US inflation data boosted recession fears and weaker demand prospects.
The dollar hit 147.67 yen, its highest level since 1990, as US and Japanese monetary policies increasingly diverge. The Bank of Japan has so far refused to raise interest rates, making yen investments less attractive than dollar investments.
“The Bank of Japan continues to maintain loose monetary policy as inflation and wages remain relatively low” in Japan, said Carol Kong, economist and monetary strategist at Commonwealth Bank of Australia.
Key figures around 3:30 p.m. GMT
London – FTSE 100: 1.3% drop to 6,740.61 points
Frankfurt – DAX: 1.1% drop to 12,037.08%
Paris – CAC 40: DOWN 1.6% to 5,727.54
EURO STOXX 50: DOWN 1.9% to 3,269.59
New York – Dow: DOWN 1.6% to 28,749.43
Tokyo – Nikkei 225: 0.6% decline to 26,237.42 (closing)
Hong Kong – Hang Seng Index: DOWN 1.9% to 16,389.11 (close)
Shanghai – Composite: DOWN 0.3% to 3,016.36 (close)
Pound/dollar: UP to $1.1193 from $1.1100 on Wednesday
Dollar/yen: UP to 147.19 yen from 146.91 yen
Euro/dollar: DOWN at $0.9666 against $0.9703
Euro/pound: DOWN to 86.38 pence vs. 87.41 pence
North Sea Brent: 0.4% down to $92.09 a barrel
West Texas Intermediate: 1.0% decline to $86.41 a barrel