Stocks fall, dollar and yields gain after hot US inflation data

Passersby walk past an electric screen displaying a graph showing Japan’s Nikkei share average movements outside a brokerage in Tokyo, Japan Feb 13, 2024. REUTERS/Issei Kato

NEW YORK  —Global stock market indexes dropped, the 10-year U.S. Treasury yield hit a 2-1/2-month high and the dollar touched a three–month peak against the yen on Tuesday after data showed U.S. inflation slowed less than expected in January.

The U.S. consumer price index report pushed back market expectations that any interest rate cuts by the Federal Reserve were imminent.

All three major U.S. stock indexes fell more than 1 percent each, and the Dow Jones industrial average posted its biggest daily percentage drop in almost 11 months.

The consumer price index increased 0.3 percent last month after gaining 0.2 percent in December, the Labor Department’s Bureau of Labor Statistics said on Tuesday.

READ: Rents boost US consumer prices in Jan

Economists polled by Reuters had forecast the CPI gaining 0.2 percent on the month and rising 2.9 percent year-on-year.

“Markets are taking it pretty hard because it puts a nail in the coffin of early (March) Fed rate cuts,” said Carol Schleif, chief investment officer at BMO Family Office in Minneapolis, Minnesota. “It’s evidence of a still-sturdy economy. There’s still inflation to be wrung out of the system.”

No rate cuts before June

After the data, expectations rose that the Fed will likely not cut rates until its June 11-12 policy meeting, with CME Group’s FedWatch Tool showing a 74.4 percent chance for a cut of at least 25 basis points at that meeting. Expectations for a cut at the April 30-May 1 meeting declined to 36.1 percent from 60.7 percent on Monday.

READ: Fed seen deferring rate cuts as inflation stays elevated

The yield on the benchmark U.S. 10-year Treasury note rose 14 basis points to 4.31 percent  after reaching 4.314 percent , its highest level since Dec. 1.

The Dow Jones Industrial Average fell 524.63 points, or 1.35 percent , to 38,272.75, the S&P 500 lost 68.67 points, or 1.37 percent , to 4,953.17 and the Nasdaq Composite lost 286.95 points, or 1.8 percent , to 15,655.60.

U.S. stocks have been trading at record highs, boosted by the big technology companies and expectations the Fed will soon cut rates.

The MSCI world equity index, which tracks shares in 49 nations, lost 1.1 percent . The Europe-wide Stoxx 600 index fell 0.95 percent .

The greenback topped 150 yen for the first time since November following the data.

The dollar surged to 150.88 yen, a three–month peak. It was last up 0.9 percent at 150.75 yen.

Cryptocurrencies up

The dollar index also touched a three–month high. It was last up 0.68 percent at 104.86, while the euro was down 0.58 percent at 1.0709.

In cryptocurrencies, bitcoin touched its highest since December 2021 at $50,383, but was last down 0.58 percent at $49,545.00.

Also due this week are U.S. retail sales data and a U.S. producer prices report.

Oil prices rose as tensions continued in the Middle East and eastern Europe.

Brent futures settled 77 cents higher at $82.77 a barrel, while U.S. West Texas Intermediate (WTI) crude gained 95 cents to settle at $77.87.

Gold prices fell below the key $2,000 per ounce level to a two-month low following the CPI data. Spot gold was down 1.3 percent at $1,993.29 an ounce, its lowest since Dec. 13.