US stock futures dropped on Friday after the Federal Reserve’s preferred measure of inflation came in higher than expected, the latest in a run of hotter-than-expected economic data that has fuelled expectations of further interest rate rises from the central bank.
S&P 500 futures fell 1.4 per cent while Nasdaq 100 futures were 1.7 per cent down, indicating that the week’s declines are set to deepen when US markets open. The indices are already down 2.5 per cent and 2.6 per cent respectively this week.
US Treasuries also sold off, with the interest rate sensitive 2-year yield rising 0.07 percentage points to 4.76 per cent. The 10-year Treasury yield climbed 0.05 percentage points to 3.94 per cent.
Core monthly personal consumption expenditure — a measure of prices closely watched by the central bank — rose by 0.6 per cent from December to January, compared with the 0.3 per cent forecast. The year-on-year figure was 4.7 per cent, substantially higher than the 4.3 per cent anticipated.
The figures follow recent strong labour market and consumer price data that have stoked market expectations that the Fed has further work to do in lifting borrowing costs in order to win its battle with high inflation.
“Markets are understandably skittish, which reflects the volatility of the data,” said Steven Blitz, chief US economist at TS Lombard.
Stocks were also dragged lower in Europe. The region-wide Stoxx 600 fell 0.7 per cent, while London’s FTSE 100 was down 0.3 per cent.
Germany’s Dax fell 1 per cent and the French CAC 40 was down 1.1 per cent.
Investors are also concerned that the European Central Bank will lift rates further. On Friday Joachim Nagel, president of the Bundesbank and a member of the ECB’s governing council, said inflation was likely to “remain at very high levels”, requiring “significant interest rate hikes beyond March”.
Earlier in Asia, the Hang Seng index fell 1.7 per cent, while China’s CSI 300 lost 1 per cent. Although ecommerce group Alibaba beat analysts’ expectations with its fourth-quarter earnings, its shares fell 5.4 per cent, suggesting investor skittishness over China’s economy despite the government easing strict Covid-19 restrictions.
The euro was down 0.3 per cent while the dollar index, which measures the greenback against a basket of six peer currencies, was up 0.5 per cent.