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US stocks and bonds slide on worse than expected inflation data

Wall Street stocks and shorter-term bonds fell sharply on Friday after U.S. inflation data came in hotter than expected, boosting market bets on how much the Federal Reserve will raise interest rates to curb rising prices.

The blue-chip S&P 500 fell 1.7% in early deals, following a 2.4% drop in the previous session, when the European Central Bank shook markets by detailing its plans to tighten monetary policy.

The high-tech Nasdaq Composite, replete with interest-sensitive growth stocks, fell 2.1 percent.

The U.S. government consumer price report showed that the annual rate of inflation rose to 8.6 percent in May, above 8.3 percent in April and exceeded economists’ forecasts, with food, energy and shelter prices all rising.

The Fed is expected to raise its principal Interest rate Next week by another 0.5 percentage points. Market forecasts for the Fed’s fund interest rate rose after the Inflation Report, and are now priced at a move of up to 2.39% by September.

“The market thinks the Fed will need to do more tightening and that increases the risk of a recession,” said Brian Nick, chief investment strategist at Nubeen.

The FTSE index of emerging and emerging market shares has fallen more than 2%, putting it on track for the most severe weekly decline since January.

In the bond markets, the two-year Treasury yield, which tracks interest rate expectations, soared by 0.13 percentage points to more than 2.9% as the price of the instrument fell. The five-year yield added 0.11 percentage points to 3.18 percent, while the 10-year index yielded Added 0.06 percentage points to 3.1 percent.

So-called equilibrium rates – indicators of market expectations for inflation in five to ten years – have risen to their highest level since mid-May.

Europe’s regional stock index Stoxx 600 fell 2.4%, with concerns about the US forecast adding to concerns about the effects of eurozone interest rate hikes on financially weak European countries.

“The message to markets is that the priority now is to eliminate inflation, it has nothing to do with growth,” said Paul O’Connor, head of the UK’s multi-asset team at Janus Henderson.

“The hawkish axis of the ECB,” he added, provided “a major setback for world bulls, as it reinforces the idea that central banks will simply not stop fighting inflation.”

The ECB, which has long been one of the world’s leading banks, signaled on Thursday that it may raise its key deposit rate to above zero in September, its first exit from negative interest rates in eight years. She also said she would complete the net purchases of member states’ debt, raising concerns about financial pressure for the bloc’s weak economies.

The yield on Greece’s 10-year bonds soared by 0.3 percentage points to 4.39% – surpassed its level at the beginning of corona-driven market movements in March 2020 – when the price of debt fell significantly.

Italy’s 10-year bond yield rose above 3.7 percent, more than three times its level earlier this year.

The gap between 10-year Italian and German bond yields widened to 2.3 percentage points on Friday, the highest level since May 2020.

In Asia, Hong Kong’s Hang Seng Index traded unchanged and Tokyo’s Nikkei 225 fell 1.5%. China’s CSI 300 rose 1.5%.

US stocks and bonds slide on worse than expected inflation data Source link US stocks and bonds slide on worse than expected inflation data

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