By Alun John
LONDON (Reuters) -Treasuries sold off sharply, U.S. share futures tumbled and the dollar jumped on Wednesday after data showing U.S. consumer prices rose more than expected in March cast further doubt on whether the Federal Reserve will start to cut interest rates in June.
Markets are now pricing in roughly a one in four chance the Federal Reserve will cut rates in June, compared to around a 50% chance before the data.
That sent the 10-year U.S. Treasury yield up 12 basis points to 4.493% and caused S&P 500 share futures to fall 1.3%.
The dollar rose sharply, up 0.67% on a basket of currencies and 0.4% against the Japanese yen to 152.39, its highest since 1990.
Analysts have previously said a move above the 152 level could spark intervention by Japanese authorities to support the currency.
The U.S. consumer price index rose 0.4% last month after advancing by the same margin in February, the Labor Department’s Bureau of Labor Statistics (BLS) said on Wednesday, putting the year-on-year increase at 3.5%.
Economists polled by Reuters had forecast the CPI gaining 0.3% on the month and advancing 3.4% on a year-on-year basis.
“Data was hotter than expected, both on the top line and the core number,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.
“That’s driven futures down because it’s indicative of sticky inflation and the potential for the Fed to either cut fewer times or not at all in 2024.”
Euro zone bonds also sold off after the data, with Germany’s 10-year Bund yield up 6 bps at 2.42%.
The European Central Bank meets on Thursday and is not expected to change its rate, though it had earlier been indicating that a June rate cut was likely.
CHINA OUTLOOK
Also drawing attention on Wednesday was Fitch affirming China’s sovereign rating at ‘A+’, though the outlook was downgraded to negative and it forecast economic growth this year would slow.
Chinese onshore blue chips dropped 0.8%, but Hong Kong’s Hang Seng index rose 1.85%. [.SS]
“These downgrades reflect mostly the current cyclical situation in China, they are not forward looking. This means that, as and when China’s economy improves, they will change their rating outlook to positive,” said Chi Lo, senior strategist at BNP Paribas Asset Management.
He added the Fitch move followed a similar call by Moody’s in December.
In commodities, aluminium prices hit their highest in 14 months and other industrial metals touched new peaks. [MET/L]
U.S. crude was up 0.25% at $85.47 a barrel, while Brent crude rose 0.4% to $89.8 per barrel. [O/R]
Spot gold was down 0.75% at $2,334.4 per ounce, moving off all-time highs. [GOL/]
(Reporting by Scott Murdoch and Alun John; Editing by Jacqueline Wong, Miral Fahmy, Ros Russell, Christina Fincher and Jan Harvey)
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