Wall Street stocks gave up earlier gains after a sharp rise in oil prices helped reignit inflation concerns, even after a key element of US inflation data came in lower than expected.
The S&P 500 traded 0.3 percent lower in New York this afternoon after rising as much as 1.3 percent earlier Tuesday. The tech-heavy Nasdaq Composite fell 0.2 percent.
Oil prices rose more than 6 percent, undermining an initially positive reaction to the new US inflation data released Tuesday morning.
Excluding price gains for volatile items like groceries and energy, the “core” US consumer price index rose 0.3 percent on a monthly basis, below the 0.5 percent forecast by economists polled by Reuters.
However, consumer prices rose 8.5 percent year over year in March, up from 7.9 percent in February, the Bureau of Labor Statistics said, marking the fastest annual increase since 1981.
Lower core inflation initially brought some relief to investors who feared that inflation overshoots would increase pressure on the US Federal Reserve to tame price growth through rapid interest rate hikes – the prospect of which has unsettled global markets in recent months.
However, Jim Paulsen, chief investment strategist at The Leuthold Group, said that the “much weaker” than expected core inflation rate is unlikely to derail the Fed’s plans to hike interest rates aggressively at its next meeting in May.
The Fed raised interest rates by a quarter of a percentage point last month, bringing the target range to 0.25% to 0.50%, the first hike since 2018.
In government bond markets, the yield on the 10-year US Treasury bond, which supports global borrowing costs, fell 0.06 percentage point to 2.72 percent. The yield on the two-year bond, which closely tracks interest rate expectations, continued to fall, suggesting investors have recalibrated their expectations for rate hikes following the release of the data.
The yield on the 10-year German Bund, an indicator of European borrowing costs, fell 0.03 percentage points to 0.79 percent. At the beginning of the year, the yield on the government bond was around minus 0.12 percent.
German investor confidence, measured by the Economic Sentiment Index of the Zew research institute, has fallen to its lowest level since the first month of the corona pandemic.
Elsewhere, Europe’s Stoxx 600 index fell 0.4 percent, Germany’s Dax 0.5 percent and France’s Cac 40 0.3 percent. London’s FTSE 100 fell 0.5 percent. European bank stocks were among the worst performers, with shares in German lenders Deutsche Bank and Commerzbank falling more than 9 percent and 8 percent, respectively.
Andrew McCaffery, global chief investment officer at Fidelity International, said he was “particularly cautious” on European equities and the euro given the “likelihood” of a recession.
In Asia, Hong Kong’s Hang Seng Index was down 0.5 percent and China’s CSI 300 was up 1.9 percent. Japan’s Topix lost 1.4 percent and South Korea’s Kospi fell 1 percent.