It was a bad day on Wall Street on Thur. Here’s what happened. Before markets opened for regular trading, the US Labor Department released inflation data which was hotter than expected. The Consumer Price Index (CPI) for Jan showed a 7.5% yoy rise. That was higher than economists’ expectations for a 7.3% increase, and the monthly pace of 0.6% also came in higher than forecast.
The hot inflation data caused US Treasury yields to rise, and shares to drop. The Dow Jones Industrial Average lost 526.47 pts, or 1.47%, to close at 35,241.59. The S&P 500 index fell 1.81%. The tech-heavy Nasdaq Composite retreated 2.1%. The small cap Russell 2000 dropped 1.55%.
The yield on the 10-year Treasury note notched up 8.78 basis points (bps) to 2.0294%, the first time it has been above 2% since Aug 2019. The yield on the 2-year Treasury note, the most sensitive duration to interest rates, surged 26 basis points to top 1.6%. When the spread goes to an inverse (the 2-year yield becomes higher than 10-year), it is often viewed as signal of a coming
recession. The spread is now wafer thin.
Treasury yields did not head to their highs, and equities did not head to their lows, until Federal Reserve Bank of St. Louis President James Bullard spoke on Bloomberg television. Bullard said he supports raising interest rates by a full percentage point by the start of Jul.
Overnight index swaps priced about 80% odds of a 50 basis-point liftoff in Mar, with an additional 25 basis points priced for May and Jun. Just under six-and-a half quarter-point moves were priced into the Dec Fed meeting.
Bucking the trend, shares of electric-vehicle charging companies leaped Thur, as the US departments of Transportation and Energy unveiled a plan to spend $7.5b to create a network of EV charging stations throughout the country.
The most actively traded US gold futures (Apr) contracts settled up $0.80, or 0.05%, at US$1,837.40/oz. March silver, which is the most actively traded silver futures, rose 18.1 cents, or 0.8%, to end at US$23.522/oz.
The ICE dollar index (DXY), which measures the strength of the greenback against a basket of currencies, was nearly unchanged at 95.553.
The front-month Brent futures closed down 14 cents at US$91.41/bbl while the WTI futures rose 22 cents at US$89.88/bbl.