LONDON: A larger-than-expected rise in US wholesale prices Friday rekindled worries over the timing of interest rate cuts and brought a halt to Wall Street’s recent rebound.
Markets had shuddered after data released on Tuesday showed US consumer price inflation slowed less than expected in January, dealing a blow to hopes of an early interest rate cut by the US Federal Reserve.
Equities quickly rebounded from that, with data showing a larger-than-expected 0.8-percent decline in retail sales for January reassuring markets that the US economy isn’t running too hot.
But data released Friday showing a 0.3 monthly gain in US wholesale prices in January was higher than the 0.1 percent gain expected by analysts, and compared to a 0.1 percent drop in December.
Excluding volatile food and energy prices, the gain was 0.6 percent in January and 2.6 percent over the year.
“Whether the market chooses to dismiss this report as a function of seasonal adjustment factors, the fact of the matter is that the Fed isn’t going to dismiss it, and will see it as a reason to remain patient with respect to cutting rates,” said Briefing.com analyst Patrick O’Hare.
Investors apparently didn’t dismiss the report, with Wall Street’s main indices slipping lower.
That helped the dollar rise against its major rival currencies, although it quickly gave up its gains against the euro, while US bond yields also rose on the prospect the Fed would hold off longer on cutting interest rates.
But James Reilly at Capital Economics said they believe the market is mistaken to focus on the consumer and wholesale prices indices as the Fed is likely to pay more attention to the PCE index, which is still heading towards its 2 percent target.
“As investors come around to our view and price Fed rate cuts back in, we think the dollar will hand back some of its recent strength,” he said.
While Capital Economics doesn’t expect the Fed to cut rates before May, Reilly said strong demand for US stocks could support demand for the dollar.
“So, we wouldn’t be surprised if the greenback continued to grind higher for a bit longer,” he said.
Europe’s stocks rallied Friday, with Frankfurt and Paris striking more record peaks after solid Asian gains, as investors shrugged off recessions in Britain and Japan.
London equities also jumped as investors drew comfort from a January rebound in UK retail sales, one day after gloomy news that Britain has entered recession.
UK retail sales volumes surged 3.4 percent in January, the fastest increase in almost three years, after sliding 3.3 percent in December, official data showed.
Sentiment was buoyed also by a jump in annual net profit at NatWest, which sent the UK bank’s share price up over seven percent.
In Asia, Tokyo’s Nikkei index ended at a new 34-year high, partly supported by the Wall Street rally on Wednesday and Thursday, including in tech shares.
Japan also entered recession at the back end of 2023, according to data released Thursday, with the Asian nation being overtaken by Germany as the world’s third-biggest economy.
Markets had shuddered after data released on Tuesday showed US consumer price inflation slowed less than expected in January, dealing a blow to hopes of an early interest rate cut by the US Federal Reserve.
Equities quickly rebounded from that, with data showing a larger-than-expected 0.8-percent decline in retail sales for January reassuring markets that the US economy isn’t running too hot.
But data released Friday showing a 0.3 monthly gain in US wholesale prices in January was higher than the 0.1 percent gain expected by analysts, and compared to a 0.1 percent drop in December.
Excluding volatile food and energy prices, the gain was 0.6 percent in January and 2.6 percent over the year.
“Whether the market chooses to dismiss this report as a function of seasonal adjustment factors, the fact of the matter is that the Fed isn’t going to dismiss it, and will see it as a reason to remain patient with respect to cutting rates,” said Briefing.com analyst Patrick O’Hare.
Investors apparently didn’t dismiss the report, with Wall Street’s main indices slipping lower.
That helped the dollar rise against its major rival currencies, although it quickly gave up its gains against the euro, while US bond yields also rose on the prospect the Fed would hold off longer on cutting interest rates.
But James Reilly at Capital Economics said they believe the market is mistaken to focus on the consumer and wholesale prices indices as the Fed is likely to pay more attention to the PCE index, which is still heading towards its 2 percent target.
“As investors come around to our view and price Fed rate cuts back in, we think the dollar will hand back some of its recent strength,” he said.
While Capital Economics doesn’t expect the Fed to cut rates before May, Reilly said strong demand for US stocks could support demand for the dollar.
“So, we wouldn’t be surprised if the greenback continued to grind higher for a bit longer,” he said.
Europe’s stocks rallied Friday, with Frankfurt and Paris striking more record peaks after solid Asian gains, as investors shrugged off recessions in Britain and Japan.
London equities also jumped as investors drew comfort from a January rebound in UK retail sales, one day after gloomy news that Britain has entered recession.
UK retail sales volumes surged 3.4 percent in January, the fastest increase in almost three years, after sliding 3.3 percent in December, official data showed.
Sentiment was buoyed also by a jump in annual net profit at NatWest, which sent the UK bank’s share price up over seven percent.
In Asia, Tokyo’s Nikkei index ended at a new 34-year high, partly supported by the Wall Street rally on Wednesday and Thursday, including in tech shares.
Japan also entered recession at the back end of 2023, according to data released Thursday, with the Asian nation being overtaken by Germany as the world’s third-biggest economy.
