(Updated prices at 10:09 a.m ET/ 1509 GMT)
Treasuries sold off sharply and a global equities index sank while the dollar jumped on Wednesday after data showing U.S. consumer prices rose more than expected in March cast doubt on the prospects for a Federal Reserve interest rate cut in June.
With increases in gasoline and shelter costs, the U.S. consumer price index rose 0.4% last month, in line with February, the Labor Department's Bureau of Labor Statistics (BLS) said on Wednesday. This put the year-on-year increase at 3.5%. Economists polled by Reuters had estimated a gain of 0.3% on the month and 3.4% year-on-year.
After the report traders were pricing in a roughly 24% chance the Federal Reserve will cut rates in June, compared with bets on a roughly 56% chance a week ago.
“The report confirms the Fed’s concerns that the stronger-than-expected economy could cause a resurgence in inflation this spring and summer and will undoubtedly delay any rate cuts,” said Oliver Pursche, senior vice president at Wealthspire Advisors.
While Pursche sees a July rate cut as "still possible" he said he would be surprised if there was a June cut or more than two cuts this year.
But some inflation watchers were still holding out hope for a June rate cut with Luke Tilley, Wilmington Trust's Chief Economist pointing to shelter as the biggest contributor to high inflation and noting that it has been slowing at a rate that would put it below pre-pandemic levels in the next 12 months.
"The market is clearly cutting back on its expectations of Fed rate cuts this year but it doesn't change the fact that they're highly likely to cut rates in 2024 because the fundamental inflation picture has not changed," Tilley said.
On Wall Street at 11:09 a.m. the Dow Jones Industrial Average .DJI fell 424.75 points, or 1.09%, to 38,458.92, the S&P 500 .SPX lost 52.12 points, or 1.00%, to 5,157.79 and the Nasdaq Composite .IXIC lost 176.88 points, or 1.08%, to 16,130.27.
MSCI's gauge of stocks across the globe .MIWD00000PUS fell 7.02 points, or 0.90%, to 772.21.
Europe's STOXX 600 .STOXX index rose 0.13%. The European Central Bank meets on Thursday and is not expected to change its rate, though it had earlier been indicating that a June rate cut was likely.
YEN WEAKENS In currencies, the dollar strengthened after the U.S. inflation data while the yen weakened, pushing the dollar to its highest against the Japanese currency since 1990, with markets alert to any signs of intervention from the Japanese authorities to prop up the yen.
The dollar index =USD gained 1% at 105.13, with the euro EUR= down 1% at $1.0746. Against the Japanese yen JPY= , the dollar strengthened 0.7% at 152.83.
In Treasuries, the benchmark 10-year yield US10YT=RR rose over 10 basis points to its highest since November last year after the inflation report.
The yield on benchmark U.S. 10-year notes US10YT=RR rose 13.3 basis points to 4.497%, from 4.366% late on Tuesday while the 30-year bond US30YT=RR yield rose 7.8 basis points to 4.5769% from 4.499% late on Tuesday.
The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations, rose 18.2 basis points to 4.9286%, from 4.747% late on Tuesday.
In energy markets, oil prices were down slightly even as a deadlock in Gaza ceasefire talks renewed uncertainty about the security of supply from the Middle East and offset a bigger-than-expected build in U.S. crude inventories.
U.S. crude CLc1 lost 0.53% to $84.78 a barrel and Brent LCOc1 fell to $89.07 per barrel, down 0.4% on the day.
Gold prices slipped from record-high levels as the U.S. dollar as Treasury yields firmed after the inflation print.
Spot gold XAU= lost 0.63% to $2,337.87 an ounce. U.S. gold futures GCc1 gained 0.07% to $2,345.20 an ounce.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates YTD http://tmsnrt.rs/2egbfVhGlobal asset performance http://tmsnrt.rs/2yaDPgn Asian stock markets https://tmsnrt.rs/2zpUAr4 Inflation gauges https://reut.rs/3UcWeFZ
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