(Bloomberg) — Stock futures retreated after a hotter-than-estimated inflation reading bolstered the case for the Federal Reserve to keep rates higher for longer, which could make the odds of a soft landing look slimmer.
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S&P 500 contracts retreated more than 1%. Contracts on the tech-heavy Nasdaq 100 underperformed amid a surge in Treasury yields. The two-year rate, which is more sensitive to imminent Fed moves, jumped to the highest since 2007. The dollar advanced. Swaps are now fully pricing in rate increases in March, May and June.
“The stock market is responding the moves in Treasury yields,” said Matt Maley, chief market strategist at Miller Tabak + Co. “If these yields remain at/near their recent highs, it’s likely going to be a rough day for the stock market.”
The personal consumption expenditures price index increased 0.6% from a month earlier, the most since June, Commerce Department data showed Friday. Excluding food and energy, the core PCE price index also climbed 0.6%. Personal spending, after adjusting for changes in prices, jumped 1.1%, rebounding from weakness at the end of last year.
The latest figures underscore risks of persistently high inflation. A pullback in inflation at the end of last year ultimately proved to be more of a mirage after revisions and the latest figures. Moreover, the exceptional strength of the labor market remains a key hurdle for the Fed to reach their 2% goal.
In corporate news, Boeing Co. sank after pausing deliveries of its 787 Dreamliner over a documentation issue with a fuselage component. Carvana Co. slumped on a much wider loss than Wall Street had expected for the used-car retailer. Beyond Meat Inc. surged on sales that exceeded expectations and the plant-based meat maker showed progress toward its goal of becoming profitable.
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Investors are dumping equities and cash alike in favor of bonds as they position for the risk that the Fed persists with hawkish policy moves, Bank of America Corp. strategists said.
Global equity funds lost $7 billion in outflows in the week through Feb. 22, while $3.8 billion left cash funds, according to a note from the bank, which cited EPFR Global data. At $4.9 billion, bonds drew additions for an eighth straight week in the longest such streak since November 2021, the team led by Michael Hartnett said.
Money managers are fortifying portfolios and hedging the risk of a prolonged inflation fight by sticking to credit maturing in just a few years.
Some funds are actively cutting so-called duration, a measure of sensitivity to interest rates, to limit the fallout if central banks keep hiking to tackle inflation. Others are simply focusing on short-dated notes as the additional yield they get from longer securities is too small to justify the risk of a slump when rates rise.
On the geopolitical front, the White House will raise tariffs on more than 100 Russian metals, minerals and chemical products, it said Friday in a statement announcing a fresh round of measures to mark the one-year anniversary of the invasion of Ukraine.
US Treasury Secretary Janet Yellen warned China and other nations against providing material support to Russia, saying any such actions would amount to an evasion of sanctions and would “provoke very serious consequences.”
Elsewhere, the yen retreated as Bank of Japan Governor nominee Kazuo Ueda warned against any magical solution to produce stable inflation and normalize policy as he largely stuck to the existing central bank script in the first parliamentary hearing to approve his appointment.
Some of the main moves in markets:
Stocks
S&P 500 futures fell 1.2% as of 8:56 a.m. New York time
Nasdaq 100 futures fell 1.6%
Futures on the Dow Jones Industrial Average fell 1%
The Stoxx Europe 600 fell 0.4%
The MSCI World index fell 0.3%
Currencies
The Bloomberg Dollar Spot Index rose 0.5%
The euro fell 0.3% to $1.0559
The British pound fell 0.3% to $1.1974
The Japanese yen fell 0.8% to 135.80 per dollar
Cryptocurrencies
Bitcoin fell 0.3% to $23,802.45
Ether fell 0.5% to $1,636.82
Bonds
The yield on 10-year Treasuries advanced three basis points to 3.91%
Germany’s 10-year yield advanced four basis points to 2.52%
Britain’s 10-year yield advanced three basis points to 3.62%
Commodities
West Texas Intermediate crude rose 0.2% to $75.56 a barrel
Gold futures fell 0.1% to $1,824.30 an ounce
This story was produced with the assistance of Bloomberg Automation.
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