Wall Street stocks and bond prices dropped on Tuesday and the dollar rose, after closely watched US inflation data for August came in higher than expected.
The broad S&P 500 share gauge fell 2 per cent at the opening bell, while the Nasdaq Composite — which is stacked full of tech companies that are more sensitive to changes in interest rate expectations — dropped 2.6 per cent.
Those moves came after a report on Tuesday showed US consumer prices ticked up 0.1 per cent in August from the previous month, compared with expectations for a fall of 0.1 per cent. The annual rate came in at 8.3 per cent, down from 8.5 per cent in July, but still higher than the 8.1 per cent Wall Street economists had predicted.
Core consumer price growth — which strips out volatile items such as energy and food — rose from 5.9 per cent to 6.3 per cent.
“The [consumer price index] report was an unequivocal negative for equity markets. The hotter than expected report means we will get continued pressure from [Federal Reserve] policy via rate hikes. It also pushes back any “Fed pivot” that the markets were hopeful for in the near term,” said Matt Peron, director of research at Janus Henderson Investors.
In government debt markets, the yield on the two-year US Treasury note jumped 0.17 percentage points to 3.74 per cent, reflecting a steep drop in the price of the bond. The 10-year yield rose 0.07 percentage points to 3.43 per cent.
The selling cascaded into eurozone bonds, with Germany’s 10-year Bund yield rising by 0.08 percentage points to 1.73 per cent.
The dollar jumped 1 per cent against a basket of six peers, as the euro and the pound slipped back, both shedding around 1 per cent.
Tuesday’s inflation report was widely anticipated ahead of the US central bank’s next monetary policy meeting in late September. Markets are pricing in the probability of a third consecutive 0.75 percentage point interest rate rise by the central bank and for further rate rises in November and December. The Fed’s current target range stands at 2.25 to 2.50 per cent.
In Europe, the regional Stoxx 600 share gauge dropped 1.1 per cent, having climbed 1.8 per cent in the previous session. London’s FTSE 100 lost 0.8 per cent.
In Asia, China’s mainland CSI 300 index rose 0.4 per cent but Hong Kong’s Hang Seng slipped back 0.2 per cent as markets in greater China reopened following a national holiday. Japan’s Topix rose 0.3 per cent.
