Coin Press - Hot US inflation leaves investors cold on equities, yen drops

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Hot US inflation leaves investors cold on equities, yen drops
Hot US inflation leaves investors cold on equities, yen drops / Photo: Michael M. Santiago - GETTY IMAGES NORTH AMERICA/AFP/File

Hot US inflation leaves investors cold on equities, yen drops

Data showing inflation rising in the United States last month sent shares tumbling on Friday as investors worried that would push the Federal Reserve to hike interest rates more aggressively.

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Meanwhile, the yen dropped after the incoming head of Japan's central bank showed no intention of altering its policy of avoiding interest rate rises.

The BoJ has so far declined to join other central banks in hiking borrowing costs in a bid to tame rapidly rising prices of goods and services.

The outlook for global interest rates continues to dominate market direction, with investors looking to see by how much the Federal Reserve and other central banks will keep raising borrowing costs to temper inflation.

Equities rallied in January on signs inflation was waning and hopes the Fed could soon pause its campaign of aggressive rate hikes and maybe even begin bringing them down by the end of the year.

They tumbled this month on signs that inflation was persistent, and the latest data released Friday further dampened hopes.

The Fed's preferred gauge of inflation, the personal consumption expenditures (PCE) price index, rose 5.4 percent last month from January 2022, up from a 4.6-annual increase in December, according to Commerce Department data.

From December to January, the PCE price index jumped 0.6 percent, the biggest monthly rise since mid-2022.

Meanwhile, consumption surged 1.8 percent in January from the previous month.

"The key takeaway from the report is the recognition that there isn't disinflation in this report," said market analyst Patrick O'Hare at Briefing.com.

"There is inflation in it, which is piquing concerns about inflation remaining sticky at higher levels for longer that, in turn, would prompt the Fed to stick to its tightening ways and stick with higher rates for longer than the market previously expected," he added.

Wall Street's main stock indices fell sharply as trading got under way. The blue-chip Dow fell by 1.1 percent, the broader S&P 500 dropped 1.2 percent and the tech-heavy Nasdaq Composite slumped 1.6 percent.

European stock indices were also pulled lower by the US inflation data, with London, Paris and Frankfurt all down by more than one percent.

The data also sent the dollar climbing against major rivals due to the prospect of higher interest rates on US debt.

But oil turned lower on the prospect that higher borrowing costs would dent demand.

- BoJ stays on course -

Tokyo stocks, meanwhile, rose solidly earlier Friday as the Bank of Japan's incoming governor Kazuo Ueda said its longstanding monetary easing policies were "appropriate".

Under current boss Karuhiko Kuroda, the bank has unleashed a raft of extraordinary ultra-loose policies -- from a negative interest rate to spending vast sums on government bonds -- in a bid to boost the sluggish economy.

The comments by Ueda, who takes the helm in April, followed data showing Japanese inflation at a four-decade high of 4.2 percent.

The figure was fuelled in part by higher energy bills, while the contrast between Fed tightening and the BoJ's easing has generally driven the yen down against the dollar, making foreign goods more expensive in Japan.

- Key figures around 1430 GMT -

London - FTSE 100: DOWN 1.5 percent at 7,891.65 points

Frankfurt - DAX: DOWN 1.2 percent at 15,287.92

Paris - CAC 40: DOWN 1.2 percent at 7,232.65

EURO STOXX 50: DOWN 1.3 percent at 4,204.01

New York - Dow: DOWN 1.1 percent at 32,803.57

Tokyo - Nikkei 225: UP 1.3 percent at 27,453.48 (close)

Hong Kong - Hang Seng Index: DOWN 1.7 percent at 20,010.04 (close)

Shanghai - Composite: DOWN 0.6 percent at 3,267.16 (close)

Dollar/yen: UP at 136.35 yen from 134.70 yen on Thursday

Euro/dollar: DOWN at $1.0537 from $1.0600

Pound/dollar: DOWN at $1.1932 from $1.2017

Euro/pound: UP at 88.31 pence from 88.17 pence

Brent North Sea crude: DOWN 0.7 percent at $81.63 per barrel

West Texas Intermediate: DOWN 0.9 percent at $74.68 per barrel

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C.Peyronnet--CPN