(Bloomberg) -- Wall Street equity indexes all opened in the red and Treasury yields spiked after data showed US producer prices rebounded in January by more than expected, underscoring persistent inflationary pressures that could push the Federal Reserve to pursue further interest-rate increases.
The producer price index for final demand jumped 0.7% last month, the most since June, and was up 6% from a year earlier, bolstered by higher energy costs. After the data release, Federal Reserve Bank of Cleveland President Loretta Mester said in prepared remarks that she saw a “compelling economic case” for rolling out another 50 basis-point hike earlier this month.
The S&P 500 Index and Nasdaq 100 each dropped more than 1%. Yield on the benchmark 10-year Treasury rose to 3.84%, the highest since Dec. 30.
The data picture was mixed. New US home construction retreated for a fifth month in January as elevated mortgage rates continue to keep a lid on housing demand, but weekly jobless claims fell to 194,000, below expectations of 200,000.
“Overall, layoffs remain low, suggesting companies remain reluctant to reduce their workforce for now,” wrote Rubeela Farooqi, chief US economist at High Frequency Economics. “A rapid rise in interest rates has yet to impact the labor market. But an adjustment is likely over coming months as the cumulative and lagged effects of restrictive monetary policy spread more broadly through the economy.”
Thursday’s data add further details for Fed policymakers plotting the path for rate hikes, after Wednesday’s US retail sales in January jumped by the most in almost two years.
“This data was just a reminder that the battle against inflation is not easy,” Peter Boockvar, chief investment officer at Bleakley Financial Group, wrote. “Cost pressures basically got into every single nook and cranny of the economy over the past few years and it doesn’t just magically disappear, especially as many companies are still trying to recover lost profit margins.”
Investors have been upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing to 5.24% in July, according to trading in the US money markets. That compares with a perceived peak rate of 4.9% just two weeks ago, and the central bank’s current 4.5% to 4.75% target range.
Read More: US Rates May Be Heading Higher Than Wall Street or the Fed Think
Europe’s Stoxx 600 Index pared its gains following the US data, after hitting the highest level in a year. France’s CAC 40 index headed toward a record close for the first time in more than a year, powered by renewed strength in luxury names thanks to China’s reopening from Covid lockdowns as well as robust earnings.
Bitcoin rose further after jumping 8.7% Wednesday, the most in three months, edging closer to the $25,000 level and sparking gains in cryptocurrency-exposed stocks in New York premarket trading.
Oil remained within a narrow range as investors assessed more evidence of higher energy demand in China and a large build in US crude stockpiles. Gold was steady.
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