Wall Street stocks gave up earlier gains after a sharp rise in oil prices helped reignite inflation concerns, even after a crucial element of US inflation data came out lower than expected.
The S&P 500 ended the day 0.3 per cent lower, having moved as much as 1.3 per cent higher earlier on Tuesday. The tech-heavy Nasdaq Composite also dipped 0.3 per cent.
Oil prices surged by more than 6 per cent, undermining an initially positive reaction to fresh US inflation data released Tuesday morning.
Stripping out price gains for volatile items such as food and energy left the “core” US consumer price index up 0.3 per cent month on month, lower than the 0.5 per cent forecast from economists polled by Reuters.
However, headline consumer prices rose 8.5 per cent year on year in March, up from 7.9 per cent in February, said the Bureau of Labor Statistics, marking the quickest annual rise since 1981.
The lower core inflation reading initially brought a measure of relief for investors, who feared an inflation overshoot would heap pressure on the US Federal Reserve to tame price growth by swiftly raising interest rates — the prospect of which has unsettled global markets in recent months.
Jim Paulsen, chief investment strategist at The Leuthold Group, said the “much weaker” than expected core inflation print was unlikely to derail the Fed’s plans to raise interest rates aggressively at its next meeting in May, however.
The Fed last month lifted its benchmark interest rate a quarter of a percentage point, bringing the target range to 0.25 per cent to 0.50 per cent, in its first increase since 2018.
In government debt markets, the yield on the 10-year US Treasury note, which underpins global borrowing costs, dropped 0.06 percentage points to 2.72 per cent. The yield on the two-year note, which closely tracks interest rate expectations, fell further, indicating investors recalibrated their expectations for interest rate rises following the data release.
The yield on the 10-year German Bund, a proxy for European borrowing costs, dipped 0.03 percentage points to 0.79 per cent. The yield on the government note stood at about minus 0.12 per cent at the beginning of the year.
German investor confidence, as measured by the Zew research institute’s economic sentiment index, fell to its lowest point since the first month of the coronavirus pandemic.
Elsewhere in equity markets, the European Stoxx 600 index declined 0.4 per cent, Germany’s Dax fell 0.5 per cent and France’s Cac 40 slipped 0.3 per cent. London’s FTSE 100 fell 0.5 per cent. European bank stocks were among the worst performers, with shares in German lenders Deutsche Bank and Commerzbank down more than 9 per cent and 8 per cent respectively.
Andrew McCaffery, global chief investment officer at Fidelity International, said he was “particularly cautious” about European equities and the euro given the “likelihood” of recession.
In Asia, Hong Kong’s Hang Seng index closed up 0.5 per cent and China’s CSI 300 added 1.9 per cent. Japan’s Topix shed 1.4 per cent and South Korea’s Kospi fell 1 per cent.