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Stocks drop, Treasury yields spike after hot US inflation

US stocks slumped while yields on US government debt shot up after higher-than-expected inflation data threw cold water on traders’ hopes for interest rate cuts by the Federal Reserve (Fed) any time soon. The Bank of Canada kept interest rates unchanged for a sixth consecutive time on Wednesday and the European Central Bank (ECB) is expected to follow suit on Thursday while setting up the possibility of an interest rate cut as soon as at its June meeting.

Shane Strowmatt, LGT
Reading time
5 minutes
Inflation shown with icons

The US consumer price index (CPI) rose by 0.4% in March compared with the previous month, driven largely by price increases for gasoline and shelter. When compared with the same month a year earlier, CPI was up 3.5%. Core CPI - which ignores volatile food and energy prices - was up 3.8% on an annual basis. While inflation has come down considerably from a mid-2022 peak of more than 9%, recent readings suggest the Fed’s current restrictive policy may have a difficult time getting inflation all the way back to its 2% target.

That caused traders to increase bets that rates would stay higher for longer. Yields on US Treasuries shot up across the curve, with yields on 2-year debt approaching the psychologically important 5% mark and 10-year yields at more than 4.5%. Gold dropped more than 1% immediately after inflation data, coming down from recent all-time highs to trade around USD 2340 per ounce.

In New York, stock indices opened clearly lower on Wednesday after the surprisingly high inflation data destroyed market sentiment. The Dow Jones Industrial lost 1.1%, trading at its lowest level in 8 weeks during the session, and the S&P 500 dropped 1%. The Nasdaq-100 finished Wednesday’s session 0.9% lower. The CBOE Volatility Index - a gauge of market fear - spiked on Wednesday.

In Europe, stocks also swiftly swung to negative territory following the sticky inflation data before recovering most losses by the end of the session. The Euro Stoxx 50 closed 0.2% higher, Germany’s DAX ended the day up 0.1% and France’s CAC 40 lost 0.1%.

The negative sentiment spilled over into the Asia-Pacific region’s open on Thursday. In Tokyo, the Nikkei 225 dropped 0.4% and South Korea’s Kospi was trading down 0.3% after returning from a public holiday. In Australia, the S&P/ASX 200 lost 0.6%. In China, inflation came in softer than expected with CPI gaining 0.1% in March when compared with the same month a year earlier. The Producer Price Index decreased by 2.8% during the same period. The Shanghai Composite was the only major index trading in positive territory on Thursday, up 0.5%. Hong Kong’s Hang Seng Index lost 1%.

Corporate news in focus: Earnings figures from Fastenal, Helvetia.

Economic data in focus: European Central Bank interest rate decision, US Producer Price Index, US weekly initial jobless claims.


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Lten steht Ihnen ein Berater der Bank gerne zur Verfügung.

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