European stocks fell and yields on US Treasuries rose in early trade on Friday as robust economic data and hawkish comments from officials fanned fears that the Federal Reserve would keep interest rates high to combat inflation.
The Europe-wide Stoxx 600 was down 1 per cent while Germany’s Dax fell 1.1 per cent. France’s Cac 40 also lost 1 per cent, after reaching a record intraday high on Thursday.
Those declines followed falls overnight on Wall Street, where the blue-chip S&P 500 index had its worst day in a month. Investors were unnerved by producer price inflation data, which tracks wholesale prices, that rose at an annual rate of 6 per cent in January, down from 6.2 per cent in December but well above the consensus estimate of 5.4 per cent.
Fund managers and economists have been watching closely for signs of persistent inflation, with recent data already pushing up the level at which interest rates are expected to peak and reducing the number of Fed rate cuts that markets are pricing in for later this year.
Meanwhile more central bank officials came out in favour of staying the course on high interest rates, with Federal Reserve Bank of Cleveland president Loretta Mester saying she had seen a “compelling case” for a half percentage point rise at its next meeting, and St Louis Fed president James Bullard also saying he wouldn’t rule out an increase of the same size.
Yields on 10-year US Treasuries rose 0.07 percentage points to 3.9 per cent, the highest level since November. Yields on the two-year bond, which is more sensitive to interest rate changes, rose 0.08 percentage points to 4.7 per cent.
Yields on 10-year German Bunds rose 0.06 percentage points to 2.55 per cent, the highest level in a year.
Futures tracking the blue-chip S&P 500 were down 0.8 per cent, while contracts for the tech-heavy Nasdaq 100 lost 1 per cent.
The dollar index, which measures the greenback against a basket of six peer currencies, was up 0.6 per cent, while the euro slid 0.3 per cent.
“We’ve been calling for the dollar to strengthen on the back of US data. The producer price index was high and the growth story is looking better,” said Francesco Pesole, FX Strategist at ING. “We had a lot of hawkish commentary from the Fed in the last week, while its clearer in the ECB that there’s a spectrum of ideas, and we haven’t seen much European data.”
Brent crude prices fell 1.9 per cent to $83.53 per barrel, while the US WTI crude index dropped 2 per cent to $76.86.
Hong Kong’s Hang Seng index was down 1.3 per cent, while the Chinese CSI 300 fell 1.4 per cent.