Soaring Inflation Spurs Bond Selloff and Market Volatility
US government bonds and equities experienced significant fluctuations following the release of inflation data that exceeded expectations.
Government Bonds Tumble
Yields on US Treasuries surged, with the 10-year yield rising nine basis points, its largest single-day increase since December. Australian and New Zealand bonds followed suit.
Equity Markets Whiplash
Equity index futures for Japan, Australia, and Hong Kong saw slight gains after US stocks traded within tight ranges. The S&P 500 closed 0.3% lower, while the Nasdaq 100 eked out a 0.1% rise. Chinese companies listed in the US outperformed, advancing 2.7%.
Yen Slumps, Euro Gains
The prospect of persistent US inflation impacted currency markets. The yen depreciated over 1% on Wednesday, while the euro led gains among G10 currencies.
Elevated Inflation Dampens Rate Cut Expectations
Traders adjusted their bets on US rate cuts, now projecting only one reduction in December. The Bureau of Labor Statistics reported a 0.5% increase in the CPI for January, exceeding August 2023 levels. Core CPI, excluding food and energy, also rose more than anticipated.
Fed Stance Unchanged
Federal Reserve Chair Jerome Powell indicated that while progress has been made in curbing inflation, "we want to keep policy restrictive for now."
Gold Rises, Oil Falls
Gold prices ticked higher, while oil prices declined as President Trump announced talks with President Putin on ending the Ukraine conflict. West Texas Intermediate and Brent crude prices decreased over 2%.
Japan Producer Prices, China Money Supply Data Ahead
In Asia, Japan's producer prices will be released on Thursday, along with an interest rate decision in the Philippines. China's money supply data is also expected in the coming days.
Caution Advised Amid Elevated Inflation Risk
Market analysts warn of increased risks of prolonged or elevated inflation, potentially delaying Fed rate cuts.
Key Market Events This Week
* Eurozone industrial production and US initial jobless claims (Thursday)
* Eurozone GDP and US retail sales, industrial production, business inventories (Friday)
* Fed's Lorie Logan speaks (Friday)
Market Movements
Stocks:
* Hang Seng futures: +1%
* S&P/ASX 200 futures: Little change
Currencies:
* Bloomberg Dollar Spot Index: Little change
* Euro: $1.0386 (stable)
* Japanese yen: 154.35 per dollar (stable)
* Offshore yuan: 7.3111 per dollar (stable)
* Australian dollar: $0.6281 (stable)
Cryptocurrencies:
* Bitcoin: $97,843.98 (+0.2%)
* Ether: $2,738.49 (+2.1%)
Bonds:
* Australia's 10-year yield: 4.52% (+6 basis points)
Commodities:
* Spot gold: Little change