By Chuck Mikolajczak
NEW YORK (Reuters) -U.S. Treasury yields and the dollar climbed on Thursday, while a gauge of global stocks fell after a stronger than expected reading on U.S. inflation cast doubt on the timing and size of interest rate cuts from the Federal Reserve this year.
The producer price index (PPI) for final demand rose 0.6% last month, above the 0.3% climb forecast by economists polled by Reuters, after advancing by an unrevised 0.3% in January, the Labor Department said.
A reading on consumer inflation earlier this week also showed some stickiness in inflation.
Other data showed U.S. retail sales rebounded last month with a 0.6% rise, but were below the 0.8% estimate, while weekly initial jobless claims fell to 209,000 versus the 218,000 forecast.
“The slight rebound in retail sales coupled with the bigger than expected jump in producer prices probably will shift the Fed’s dot plot to indicate two rate cuts in 2024 instead of three,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“The Fed doesn’t have to be in a hurry to cut and the latest data will likely encourage them to drag their feet.”
The Dow Jones Industrial Average fell 185.94 points, or 0.48%, to 38,857.04, the S&P 500 lost 25.95 points, or 0.50%, to 5,139.58, and the Nasdaq Composite lost 76.41 points, or 0.47%, to 16,101.51.
Ahead of a Fed policy meeting next week where a rate cut is essentially ruled out, the market has trimmed the odds of a cut at the June meeting, with expectations for a cut of at least 25 basis points at 62.9%, according to CME’s FedWatch Tool, down from 81.7% a week ago.
The yield on benchmark U.S. 10-year notes jumped 9.6 basis points to 4.288% while the 2-year note yield, which typically moves in step with interest rate expectations, rose 6.3 basis points to 4.6872%.
The 10-year yield was on track for its biggest one day increase since Feb. 13.
MSCI’s gauge of stocks across the globe fell 3.90 points, or 0.50%, to 771.40, while the STOXX 600 index closed down 0.18% after hitting a third straight intraday record high. Europe’s broad FTSEurofirst 300 index shed 3.37 points, or 0.17%.
The Bank of Japan also meets next week. Officials including Governor Kazuo Ueda have sought to temper expectations of an imminent shift out of negative interest rates, which has set the yen on course for its worst weekly performance in a month.
The dollar index gained 0.57% to 103.34, with the euro down 0.58% at $1.0883.
Against the Japanese yen, the dollar strengthened 0.29% to 148.17. The Japanese currency had briefly firmed against the U.S. dollar after Jiji news agency reported the Bank of Japan had started to make arrangements to end its negative interest rate policy at the March 18-19 meeting.
Investors have been pricing in the chance of a change in policy this month, particularly after news of big pay hikes from some of Japan’s biggest companies at this year’s annual wage negotiations.
In commodities, U.S. crude gained 2.07% to $81.37 a barrel and Brent rose to $85.45 per barrel, up 1.69% on the day after the International Energy Agency’s (IEA) latest oil market report predicted a tighter market in 2024.
(Reporting by Chuck Mikolajczak Editing by Barbara Lewis and Mark Potter)
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