Stocks fell on Wall Street yesterday after strong US inflation data increased the probability of a rate hike from the Federal Reserve, while a global gauge of stocks ticked lower.
The US dollar lost ground against a basket of currencies. Crude oil futures were volatile, with Brent prices matching the six-month highs hit Monday. US crude touched its highest in seven months.
US consumer prices recorded their biggest increase in more than three years in April, pointing to a steady inflation build-up.
Other US data yesterday showed housing starts rose more than expected last month, suggesting the economy was regaining steam early in the second quarter.
Traders now see the probability of a rate hike after the Fed’s November meeting as a toss-up at 51 per cent, up from roughly 42 per cent on Monday, according to the CME FedWatch tool.
At a joint appearance in Washington, Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams agreed that two to three rate hikes in the remainder of this year is reasonable.
On Wall Street, stocks were led lower by the more defensive, high-dividend paying sectors, which tend to be sold when more investors expect higher rates.
The Dow Jones industrial average fell 91.26 points, or 0.52 per cent, to 17,619.45, the S&P 500 lost 9.78 points, or 0.47 per cent, to 2,056.88 and the Nasdaq Composite dropped 26.08 points, or 0.55 per cent, to 4,749.38.
The pan-European FTSEurofirst 300 share index ended down 0.03 per cent, while MSCI’s gauge of stocks across the globe was down 0.09 per cent.
In the currency market, the British pound rose as much as 0.9 per cent to $1.4524, helped in part by a report that the “In” campaign held a 15-point lead over rival “Out” ahead of Britain’s June 23 referendum on European Union membership.
The dollar index fell for a second consecutive day as traders doubted the US inflation data was enough to push the Fed closer to tightening policy. The yen was up 0.06 per cent versus the greenback at 109.08 per dollar and the euro rose 0.05 per cent to $1.1322.
Yields for two-year Treasury notes rose as high as 0.819 per cent on the strong inflation data, their highest since April 28. Three-year notes also hit their highest since then, touching 0.979 per cent.
Benchmark 10-year notes rose 1/32 in price to yield 1.7534 per cent, down from 1.753 per cent on Monday.
US crude prices hit seven-month highs on expectations of lower US stockpiles. US crude touched $48.42, the highest since mid October, and was recently up 0.5 per cent at $47.97.
Brent crude hit $49.58 per barrel, a six-month high, and last traded at $49.01, up 0.1 per cent on the day.
Copper ticked up 0.1 per cent to $4,652 per tonne.
Spot gold was up 0.2 per cent at $1,276.56 an ounce.