By Chuck Mikolajczak
NEW YORK (Reuters) – A gauge of global stocks was set to snap a seven-week streak of gains on Friday, while the dollar was on track for its strongest week since mid-January, as recent U.S. inflation data has fueled a reassessment for the path of interest rates.
Equities have struggled for upward momentum this week, after readings on U.S. consumer prices and producer prices indicated inflation remains sticky, dampening expectations the U.S. Federal Reserve will cut rates by its June meeting.
Markets are pricing in a 59.2% chance for a rate cut of at least 25 basis points (bps) by the Fed in June, down from 59.5% in the prior session and 73.3% a week ago, according to CME’s FedWatch Tool.
The central bank is widely expected to hold rates steady at its policy meeting next week but investors will be closely monitoring the central bank’s economic projections.
Data on Friday showed U.S. import prices increased marginally in February as a surge in the cost of petroleum products was partially offset by modest gains elsewhere, suggesting an improving inflation picture.
“If the macro data continues to be strong and inflation stays this high, why in the world would the Fed cut?” said Liz Young, head of investment strategy at SoFi in New York.
“Or if the Fed did cut in the face of that, then we run the risk of overheating and seeing a re-acceleration in inflation, and then it’s like at the end of the story, nobody wins.”
On Wall Street, the Dow Jones Industrial Average fell 230.82 points, or 0.59%, to 38,674.84, the S&P 500 lost 37.08 points, or 0.72%, to 5,113.38 and the Nasdaq Composite lost 162.96 points, or 1.01%, to 15,965.57.
In addition, a survey from the University of Michigan showed its preliminary reading on consumer sentiment and inflation expectations were little changed in March while a separate report said production at U.S. factories increased more than expected in February.
The dollar index gained 0.1% to 103.48, recouping most of the prior week’s decline, with the euro up 0.02% at $1.0883. Sterling weakened 0.2% to $1.273.
Against the Japanese yen, the dollar strengthened 0.49% to 149.05, despite expectations the Bank of Japan is expected to end its negative interest rate policy at its meeting next week.
MSCI’s gauge of stocks across the globe fell 5.37 points, or 0.70%, to 767.28 and was poised for its third straight daily decline, the longest streak since the start of the year.
The STOXX 600 index closed down 0.32%, while Europe’s broad FTSEurofirst 300 index fell 7.42 points, or 0.37%.
The yield on benchmark U.S. 10-year notes was up 1 basis point at 4.308% after reaching 4.322%, its highest since Feb. 23. The 2-year note yield, which typically moves in step with interest rate expectations, rose 3.4 basis points to 4.7254%.
Oil prices succumbed to some profit taking, following strong gains this week amid sharp declines in U.S. crude and fuel inventories, drone strikes on Russian refineries and an increase in energy demand forecasts. [O/R]
The oil benchmarks were on track to close out the week with a gain of more than 3%, even as U.S. crude was trading 0.37% lower on the day at $80.96 a barrel and Brent fell 0.21% to $85.23 per barrel.
(Reporting by Chuck Mikolajczak; Editing by Marguerita Choy, Kirsten Donovan)
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