Wall Street rattled by inflation report, ASX to fall

“If we get one more reading like this, Fed chatter will shift from when to cut to whether to hike.”

Prices for everything from bonds to bitcoin to gold fell immediately after the morning’s release of the inflation data.

The yield on the 10-year Treasury jumped to 4.54 per cent from 4.36 per cent late Tuesday. The two-year yield, which moves more on expectations for Fed action, climbed to 4.95 per cent from 4.74 per cent.

Traders sharply cut back on bets that the Fed could begin cutting rates in June. They now see a 17 per cent chance of that, down from nearly 74 per cent a month ago, according to CME Group’s FedWatch tool.

Perhaps more importantly, traders shifted more bets toward the Fed cutting rates just twice over the course of this year. At the start of the year, they were forecasting six or more cuts through 2024.

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High interest rates work to undercut inflation by slowing the economy and hurting investment prices. The fear is that rates left too high for too long can cause a recession.

Wall Street’s biggest losers included real-estate investment trusts, utility companies and other stocks that tend to get hurt most by high interest rates.

Real-estate stocks in the S&P 500 fell 4.3 per cent for the biggest loss by far among the 11 sectors that make up the index. That included a 5.7 per cent drop for office owner Boston Properties and a 5.3 per cent tumble for Alexandria Real Estate Equities.

Critics had already been saying the US stock market looked too expensive by several measures. Either interest rates needed to fall or profits for companies needed to rally to make stock prices look more reasonable. The hope on Wall Street is that the resilient US economy could help prop up profits, even if it does diminish hopes for rate cuts.

Big US companies are lining up on the runway to say how much profit they earned during the first three months of the year, and Delta Air Lines helped kick off the reporting season by delivering stronger-than-expected results.

The airline said it’s seeing strong demand for flights around the world, and it expects the strength to continue through the spring. Its stock climbed as much as 4 per cent during the morning before flipping to a loss of 2 per cent. Other airline stocks were also slipping, including a 2 per cent loss for United Airlines.

The banking industry will soon take the spotlight in earnings season, with JPMorgan Chase and Wells Fargo among those reporting on Friday.

In stock markets abroad, indexes were mixed across much of Europe. In Asia, stocks rose 1.9 per cent in Hong Kong but fell 0.7 per cent in Shanghai after Fitch Ratings lowered its outlook for China’s public finances.

AP