US stocks slid on Friday as the recent run of robust economic data and hawkish comments from central bank officials fanned concerns that the Federal Reserve will keep interest rates high for a prolonged period to combat inflation.
The blue-chip S&P 500 was down 0.9 per cent in morning trade in New York, while the tech-heavy Nasdaq Composite shed 1.5 per cent.
Those declines added to the S&P’s worst day in a month on Thursday, underscoring a week in which investors have been readjusting their expectations on US interest rates after more economic data, which offered further evidence of the strength of the American economy.
Fund managers and economists have been watching for signs of persistent inflation, with recent data pushing up the level at which the market expects interest rates to peak and reducing the number of Fed rate cuts that are being priced in for later this year. This week stronger than expected retail sales and producer price inflation data has prompted investors to consider that rates will remain elevated.
“If inflation continues to come in strong it will keep the Fed convinced they need to keep raising rates, and if the data continues to hold up they might hike even further,” said Citi Chief US Economist Andrew Hollenhorst.
Yields on 10-year US Treasuries have closed in on their highest point since late December as bond prices fell. On Friday the yield fell 0.07 percentage points to 3.83 per cent. Yields on the two-year bond, which is highly sensitive to the expected path of interest rates, edged up 0.01 percentage points to 4.63 per cent, its highest point since November.
Meanwhile, more US central bank officials have come out in favour of staying the course on high interest rates, with Federal Reserve Bank of Cleveland president Loretta Mester saying on Thursday she had seen a “compelling case” for a half percentage point rise at the next meeting, and St Louis Fed president James Bullard also saying he wouldn’t rule out an increase of the same size.
The dollar index, which measures the greenback against a basket of six peer currencies, was up 0.2 per cent, while the euro was up 0.2 per cent against the greenback.
In Europe the benchmark Stoxx 600 closed down 0.2 per cent, off its lows from earlier in the session, while Germany’s Dax was 0.3 per cent lower. France’s CAC 40 finished 0.3 per cent lower, after reaching a record high on Thursday.
Yields on 10-year German Bunds gave up gains to ease 0.05 percentage points to 2.44 per cent as investors debated whether the European Central Bank would follow the Fed in raising rates. The moves came after Isabel Schnabel, one of the bank’s executive board members, told Bloomberg she saw risks that markets will underestimate inflation.
Brent crude prices slipped 2.6 per cent to $82.93 per barrel, while the US WTI crude index dropped 2.9 per cent to $76.19.
Hong Kong’s Hang Seng index was down 1.3 per cent, while the Chinese CSI 300 fell 1.4 per cent.
