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US stocks and Treasuries drop after inflation hits 40-year high

Wall Street stocks and government bond prices fell on Thursday after data showed the rate of US inflation hit a fresh 40-year high in January.

The broad-based S&P 500 index was down 0.5 per cent by late morning in New York, having dropped 1 per cent in opening trade. The technology-heavy Nasdaq Composite was also down 0.5 per cent, after falling 1.5 per cent in early dealings.

US government debt also came under renewed selling pressure, having steadied in advance of Thursday’s data release. The yield on the two-year Treasury note, which moves inversely to its price and closely tracks interest rate expectations, added 0.15 percent points to almost 1.5 per cent. The 10-year Treasury yield climbed to 2 per cent for the first time since August 2019, with markets now pricing in six interest rate rises by the US Federal Reserve in 2022.

US consumer prices rose at an annual pace of 7.5 per cent last month, higher than the 7.3 per cent forecast by analysts and marking the fastest pace since 1982. The month-on-month inflation rate hit 0.6 per cent in January, higher than the 0.5 per cent figure expected by economists.

“Does this change my thesis that inflation will slowly unwind? No, ”said Steven Blitz, chief US economist at TS Lombard. “Will the Fed shock the market by raising rates by 50 basis points [0.5 percentage points] [in March]? The odds of that just increased, but it’s still more likely we get 25 and another 25 six weeks later. ”

The sovereign debt market had on Wednesday rebounded from a sell-off earlier in the week fueled by concerns that the Fed and European Central Bank might raise rates more aggressively than expected to tackle rising prices.

Across the Atlantic, the yield on Germany’s 10-year Bund, which last month traded in positive territory for the first time since 2019, added 0.06 percentage points to hit 0.28 per cent. The yield on Italy’s 10-year bond – viewed as particularly sensitive to rising rates because of the sur high debt – rose 0.12 percentage points to 1.89 per cent.

In European equity markets, the Stoxx 600 index dipped 0.3 per cent, after closing 1.7 per cent higher in the previous session. London’s FTSE 100 added 0.3 per cent.

Mike Zigmont, head of trading and research at Harvest Volatility Management, had said ahead of the inflation figure that it would provide “a fundamental catalyst for a big push up or down” in stock markets that have whipsawed back and forth for weeks.

Brent crude, the international oil benchmark, added 1.3 per cent to $ 92.76 a barrel, remaining around its highest level since 2014.

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