United States futures sink as strong inflation data raises rate hike fears

Why Increases In US Bond Yields Hurt Your Stocks

United States futures sink as strong inflation data raises rate hike fears

USA stock-index futures turned firmly lower on Wednesday, after the January consumer-price index came in stronger than expected.

Rising inflation expectations pushed stock prices lower, as investors see it as resulting in higher interest rates.

The key level to watch is 3% on the 10-year government bond, as that is a key area that could create added pressure on stocks, adds Ripley.

The Labour Department said its Consumer Price Index increased 0.5 per cent last month as households paid more for gasoline, rental accommodation and healthcare. At the same time, the retail sales data of United States is also due to forecast increase by 0.2%.

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Excluding the volatile food and energy components, the CPI shot up 0.3 percent, the largest increase since January 2017. The core CPI rose 0.3%, while the 12-month gain in total CPI was unchanged at 2.1%.

Separately, a report showed USA retail sales decreased 0.3 per cent last month, the biggest fall in almost a year and a surprise drop compared with economists' expectations of a 0.2 per cent increase. Higher borrowing costs slow economic growth.

"In some ways you would say this is the worst possible number for USA equities: extremely weak U.S. retail sales and a higher CPI. I think there is less to the numbers than meets the eye, however", Steven Englander, head of research and strategy at Rafiki Capital in NY, said.

March contracts on the S&P 500 rose 0.5 per cent at 8:24 a.m.in London after fluctuating during Asian trading hours. Nasdaq 100 e-minis were down 44.5 points, or 0.68 per cent, on volume of 92,441 contracts.

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USA stock-index futures extended gains, hitting a session high in early London trading as investors await a key inflation report Wednesday.

The strong CPI data added to fears of firming inflation that was ignited by a strong January jobs report on February 2, which was a trigger for last week's sell-off in the stock market.

The CBOE Volatility index, known as Wall Street's fear gauge, was last at 23.52 points.

The yields on the benchmark US 10-year Treasury bonds rose to 2.8730 percent after falling to 2.8222 percent earlier.

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"(Wednesday) will bring the most important CPI report in over 10 years, as rising inflation (which will cause higher interest rates) has become one of the biggest risks to this multi-year rally", Tom Essaye, founder of The Sevens Report, said in a note Tuesday.

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