9.35am: Fed fears re-ignited
US stocks started Friday in the red as a slew of stronger-than-forecast data and hawkish fed comments have re-ignited fears about the central bank’s path of interest rate hikes.
Just after the market opened, the Dow Jones Industrial Average had shed 124 points or 0.4% at 33,573 points, the S&P 500 was down 23 points or 0.6% at 4,067 points, and the Nasdaq Composite had lost 70 points or 0.6% at 11,790 points.
FOREX.com market analyst Fiona Cincotta noted that US stocks were heading lower in risk-off trade after hawkish comments from the Fed and European Central Bank officials fueled bets of higher interest rates for longer.
“After an optimistic start to 2023, February is proving to be a much more troubling month for stocks,” she said.
“In light of the blowout jobs report, hotter-than-expected inflation, and a rebound in retail sales, the market is now starting to price in three more 25 basis point rate hikes over coming Fed meetings, up from a previously expected two more rate hikes.”
Cincotta said with inflation proving to be stickier than expected, a terminal rate of 5.5%, was looking very plausible, which is up from expectations of a terminal rate of 5% at the start of the month.
“The data is forcing the market to finally pay attention to what the Fed has been saying that rates need to rise further and stay high for longer to rein in inflation, which is still too high,” she said.
6.30am: Fears Fed will go higher for longer
US stocks are expected to extend the previous session’s sharp falls at the open on Friday as worries over stubbornly high inflation mount up, while comments from Federal Reserve officials point to interest rates remaining higher for longer.
Futures for the blue-chip Dow Jones Industrial Average (DJIA) were 0.6% lower in pre-market trading, while those for the broader S&P 500 and tech-laden Nasdaq-100 fell 0.8% and 1.1%, respectively.
On Thursday, the DJIA shed 431 points, or 1.3%, while the S&P 500 lost 1.4%, and the Nasdaq Composite dropped 1.8%.
The losses came after January’s producer price index (PPI) rose by 0.7%, well above forecasts for a 0.4% increase in wholesale inflation, which came hot on the heels of a stronger-than-expected consumer price index (CPI) reading for January earlier in the week. The Labor Department also reported an unexpected fall in initial jobless claims for the week ending February 11 on Thursday.
The sell-off intensified late in the day following comments from St. Louis Federal Reserve president James Bullard who had backed a 50 basis point interest rate hike at the central bank’s previous policy meeting and said that he would not rule out a rate increase of that magnitude at the March meeting.
Neil Wilson, chief market analyst at markets.com, commented: “I’ve been saying it here for long enough – the Fed will go higher and for longer than the market keeps hoping. Now the latest PPI print and some more hawkish noises from James Bullard has scattered the bulls … This is telling us that inflation is proving to be stickier and broader than feared.”
He added: “Fundamentally, the market and perhaps the Fed were declaring victory on inflation too soon. It’s the old pivot narrative from last year but remember the Fed was never going to pivot and now can’t because it’s become data dependent; and the data won’t allow it.”
Investors will watch Fed officials for more hints on the central bank’s rate-hiking campaign on Friday, with Richmond Fed president Tom Barkin speaking about the labor market on Friday morning and Fed Governor Michelle Bowman taking part in a discussion at the Tennessee Bankers Association’s credit conference.
On a weekly basis, the major indexes are mixed ahead of Friday’s session. The DJIA is down 0.5% for the week and on pace for its third negative week in a row, the first since September. The Nasdaq Composite is up 1.18% for the week, on track for its sixth week of gains in seven, but the S&P 500 is flat.