Most markets fall as US inflation data dims rate cut hopes
HONG KONG: Most markets edged down on Thursday after forecast-topping US inflation dealt a blow to hopes for a June interest rate cut and forced traders to re-evaluate the outlook for monetary policy, with a warning that the next move could even be a hike.
The losses tracked a sell-off on Wall Street and saw the dollar strike a 34-year high against the yen, fuelling speculation Japanese authorities will step in to support their beleaguered currency.
Figures showing the consumer price index rose 0.4 per cent onmonth and 3.5 per cent on-year were both above consensus for the third month in a row and observers warned the pick-up might not be a blip but could point to a worrying trend.
They also came on the back of other data — most recently a forecast-busting jobs report — suggesting the world’s number one economy was still in rude health despite borrowing costs being at a two-decade high and inflation well above target.
The reading will give Federal Reserve officials more to mull over ahead of their May policy meeting, with their recent guidance of three rate cuts this year now in doubt.
Investors started the year optimistic that the central bank would make six cuts in 2024 — with the first in March — but now they are eyeing two at most, with the chances of a June reduction diminishing.
But some are less hopeful. Apollo Global Management’s Torsten Slok said: “We are sticking to our view that the Fed will not cut rates in 2024.”
And former Treasury Secretary Lawrence Summers said traders must “take seriously the possibility that the next rate move will be upwards rather than downwards”.
Still, minutes from the Fed’s most recent meeting showed that while decision-makers were worried about recent figures, they still saw cuts this year.
“Some participants noted that the recent increases in inflation had been relatively broad-based and therefore should not be discounted as merely statistical aberrations,” the Fed said in a statement.
“However, a few participants noted that residual seasonality could have affected the inflation readings at the start of the year.”
And Finalto’s Neil Wilson added that “despite the hot number, there are many reasons why the Fed may still cut in June... but if the market moves too far out of step then the Fed may be forced to wait a little longer”.