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GLOBAL MARKETS-Wall Street skids on inflation fears; USD, bond yields jump

Published 12/05/2021, 22:26
Updated 12/05/2021, 22:30
© Reuters.

© Reuters.

(Adds market details)
* US CPI rose 0.8% in April vs 0.2% forecast
* S&P 500 in biggest one-day decline in 2-1/2 months
* U.S. Treasury yields jump on inflation data
* Expectations of rising real rates boost dollar
* World FX rates https://tmsnrt.rs/2RBWI5E

By Koh Gui Qing
NEW YORK, May 12 (Reuters) - U.S. stocks suffered the
biggest slump in at least 11 weeks on Wednesday and benchmark
Treasury yields jumped after data showed consumer prices in
April unexpectedly rose by the highest level in nearly 12 years,
prompting bets on earlier interest rate hikes.
A 0.8% jump in the U.S. consumer price index - outpacing a
0.2% forecast - boosted the U.S. dollar as expectations of
rising real interest rates burnished the currency's appeal.
The gyrations in financial markets underscored concerns
among some investors that the Federal Reserve could be wrong in
its prediction that inflation pressures in the United States are
temporary, and that the central bank may have to raise rates
sooner than it expects.
The prospect of tighter monetary policy knocked shares lower
and the stock market steadily extended losses through the day.
The Dow Jones Industrial Average .DJI shed 2%, the S&P 500
.SPX dropped 2.1%, and the Nasdaq Composite .IXIC lost 2.7%.
.N
For the S&P 500 and the Nasdaq Composite Index, Wednesday's
tumble was the biggest fall in a single day since Feb. 25, while
the Dow's decline was the sharpest in a day since Jan 29.
Richard Clarida, vice chair of the Federal Reserve,
acknowledged on Wednesday that the latest inflation report was
the second piece of data in a week to catch the central bank
off-guard, describing it as the "biggest miss in history."
Yet Clarida maintained the Federal Reserve's dovish note,
saying it will be "some time" before the U.S. economy is
sufficiently healed for the central bank to consider pulling
back its crisis-level of support. Some investors continued to challenge the Federal Reserve's
assessment, however.
"We've been warning about the prospect of higher for longer
inflation in the United States for many months, but even we
hadn't predicted this," said James Knightley, chief
international economist at ING Group.
"We increasingly doubt the Fed's position that this is
transitory and think they will end up hiking rates far sooner
than 2024."
Some money market investors seemed to agree. Eurodollar
futures contracts expiring in December 0#ED: on Wednesday
priced in a 25-basis-point rate hike by the end of next year,
compared with 22 basis points before the inflation report.

DOLLAR GAINS
Weakness on Wall Street mirrored stock market losses in
Asia, as surging commodity prices stoked inflation concerns.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS had slumped 0.95% overnight, after hitting its
lowest level since March 26.
European shares fared better. London's blue-chip FTSE 100
.FTSE rebounded 0.8% as buoyant corporate earnings and a
better-than-expected economic growth report bolstered hopes
about a sharp recovery from the pandemic-driven recession.

In the United States, the surprisingly strong inflation data
lifted Treasury yields. The benchmark 10-year Treasury yield
US10YT=RR jumped to 1.6952%, its biggest rise in a day since
March 18, and the two-year Treasury yield US2YT=RR also rose
to stand at 0.1668%. US/
In keeping with expectations of rising price pressures as
the U.S. economy recovers from the COVID-19 pandemic, the yield
curve steepened, and the spread between two- and 10-year
Treasury yields widened to 152.8 basis points.
The dollar, which could benefit from rising real interest
rates, gained after wobbling briefly earlier in the day.
The dollar index =USD , which measures the greenback
against six major currencies, rose 0.65% to 90.795. USD/
A stronger dollar dented the euro EUR=EBS , which slid 0.6%
to $1.2070.
Higher Treasury yields and the stronger dollar dragged on
non-yielding bullion. Spot gold XAU= slid 1.3% to $1,813.41 an
ounce. XAU= GOL/
Hopes of rising demand on the back of an economic recovery
pushed oil prices to eight-week highs.
U.S. crude CLc1 jumped 1.2% to $66.08 a barrel, the
highest close since March 11. Brent crude LCOc1 added 1.1% to
$69.32 per barrel, a close last seen on March 5. O/R
In cryptocurrencies, ether ETH=BTSP fell after scaling a
new record high overnight, dropping 2% to $4,096.01. The value
of the second-biggest digital token has surged over 5.5 times so
far this year.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Asia stock markets https://tmsnrt.rs/2zpUAr4
Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
US inflation https://tmsnrt.rs/3tF1WzY
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