US stocks were on course for the second weekly loss in a row on Friday as robust economic data continued to fan investor fears that the Federal Reserve will need to apply a brake to the American economy for longer than anticipated just last month.
The blue-chip S&P 500 was down 0.7 per cent in midday trading in New York, while the tech-heavy Nasdaq Composite shed 1.3 per cent. At those levels, both indices were lower for the week.
Those declines added to the S&P’s worst day in a month on Thursday, underscoring the readjustment in investor expectations on US interest rates after both consumer and wholesale price data published this week came in hotter than expected.
Retail sales data released this week also showed a sharp jump for January, another sign the US economy was still strong despite the Fed’s year-long attempt to curb growth and bring down inflation through an aggressive campaign of rate increases.
“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 Andrew Hollenhorst, Citi chief US economist.
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 would not 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.
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