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U.S. producer prices rise in November
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Rate hike worries keep Wall Street under wraps
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Crude prices set for 10% weekly loss
By Herbert Lash and Carolyn Cohn
NEW YORK/LONDON, Dec 9 (Reuters) – Treasury yields rose and Wall Street stocks fell on Friday after U.S. producer price data raised conflicting views, sparking hopes of a moderation in inflation, but also fear that the Federal Reserve will have to maintain higher interest rates for longer
The producer price index (PPI) for final demand rose 0.3% last month and 7.4% in the 12 months to November, while October’s PPI rose revised up to 0.3% from 0.2% as previously reported, the US Department of Labor said.
Economists polled by Reuters had forecast monthly PPI up 0.2% and up 7.2% year-on-year.
As data showed a slowdown in inflation over the past 12 months, the monthly rise fueled concerns that next week’s Consumer Price Index report could indicate that inflation is sticky and lead the Fed not to cut rates as soon as many anticipate it.
Fed policymakers are expected to raise rates by 50 basis points next Wednesday at their last meeting of the year, to a range of 4.25% to 4.50%, which would mark a slower pace of rate hikes. rate.
“Markets are overly optimistic that sometime between June and December (next year) the Fed will be ready to cut,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.
“Today’s data shows that inflation is down, but it is persisting and stickier than most assume,” he said. “The Fed is going to have to raise interest rates a bit more.”
Futures contracts show that the terminal rate will peak at 4.948% next May and then decline to 4.488% by December 2023.
US stocks earlier pared losses after the University of Michigan’s preliminary reading of consumer sentiment showed improvement to 59.1 in December from 56.8 the previous month.
But the enthusiasm for the UMich surveys quickly faded and Wall Street stocks closed sharply lower. The Dow Jones Industrial Average fell 0.9%, while the S&P 500 lost 0.73% and the Nasdaq Composite fell 0.7%.
Over the week, the Dow lost 2.78%, the S&P 500 3.38% and the Nasdaq 3.99%.
“The Fed has made it clear that it is not about repeating the mistakes of the past,” said Johan Grahn, head of ETFs at Allianz Investment Management in Minneapolis, referring to the premature halt to rate hikes.
“Time just has to run its course before we know we’re on track for the Fed’s goal, a soft landing that’s been talked about,” Grahn said. “It will take time for inflation to come down.”
MSCI’s US-centric gauge of stocks across the world fell 0.14%, while in Europe the broad STOXX 600 index rose 0.84%. But recession worries dragged the pan-European index to a weekly loss after a seven-week rally.
Treasury yields rose, suggesting higher long-term rates, with the benchmark 10-year yield rising 10.2 basis points to 3.595%.
The two-year note, which often moves in line with rate expectations, rose 3.2 basis points to 4.344%.
The yield curve measuring the spread between two- and ten-year bond yields, a harbinger of recession, was at -75.5 basis points.
The Fed’s summary of economic projections should show that rates will remain higher currently in futures, Cliff Hodge, chief investment officer at Cornerstone Wealth in Charlotte, North Carolina, said in a note.
“Markets are too bullish on rates after the first quarter and we expect Powell to take a more hawkish tone,” Hodge said, referring to Fed Chairman Jerome Powell.
The Dollar was overall weaker overnight, but reversed some of its losses after the PPI report.
The euro fell 0.27% to $1.0528 and the yen was flat at 136.68 to the dollar.
The world’s biggest investment banks expect global economic growth to slow further in 2023 after a year troubled by conflict in Ukraine and soaring inflation, which triggered one of the tightening cycles of monetary policy in recent times.
Besides the Fed, the European Central Bank and the Bank of England are also expected to announce rate hikes next week as policymakers continue to rein in the economy to curb inflation.
Oil prices rose, but both benchmarks were set for a weekly loss as concerns over weak economic prospects in China, Europe and the United States weighed on demand for oil.
U.S. crude futures fell 44 cents to settle at $71.02 a barrel. Brent settled 5 cents at $76.10.
Gold prices rose despite a slight rise in the dollar and Treasury yields, with some investors still expecting the Fed to slow the pace of rate hikes from early next year.
US gold futures settled up 0.5% at $1,810.70 an ounce.
(Reporting by Herbert Lash; Additional reporting by Carolyn Cohn in London and Stella Qiu in Sydney; Editing by Chizu Nomiyama, Mark Potter, Leslie Adler and Diane Craft)
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