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U.S. equity indexes sink, VIX gains, Nasdaq off ~2%
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U.S. Feb UMich sentiment final, Jan new home sales > estimates
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Euro STOXX 600 index off ~1%
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Dollar gains; crude, gold, bitcoin down
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U.S. 10-Year Treasury yield rises to ~3.94%
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U.S. STOCKS START FRIDAY IN A FUNK ON HOT CONSUMER
SPENDING (1033 EST/1533 GMT)
Wall Street's major averages started the day bright red with already fading hopes for any let-up in Federal Reserve rate hikes turning even dimmer after data showed inflation accelerating in January and easing less than hoped. After already erasing its year-to-date gains on Thursday, the Dow industrials is down more than 1% YTD. The S&P 500 after opening below its 50-day moving average for the first time since January 20, is now nearing its 200-DMA.
With a surge in wage gains, U.S. consumer spending increased by the most in nearly two years in January at 1.8% compared with economist expectations for 1.3% and December's revision to a 0.1% dip vs previously reported 0.2% dip. The Commerce Department report was the latest indication the economy is nowhere near a much-dreaded recession.
But the flip-side of that is trader bets that the Federal Reserve is far more likely than not to raise its target range from 4.5%-4.75%, to 5.25%-5.5% by June, with a better than one in three chance seen if it lifts rates at least one more quarter-point by July.
So a year-end rate range of 5.25%-5.5% is now seen as most
likely, mocking any remaining hopes for a rate cut in 2023.
While Bill Adams, Chief Economist for Comerica Bank in
Dallas, TX said the data allyed "verge of recession" fears, he
noted that "sticky inflation and a higher-for-longer path of
interest rates increase the downside risk to the 2024 growth
outlook."
Of the S&P 500's 11 major industry indexes, tech and consumer discretionary are both down more than 2%,
while financials , which benefits from higher rates, is
the best performer, down only ~0.9%.
Here is a market snapshot for ~1030 EST:
(Sinéad Carew)
*****
U.S. STOCK FUTURES WEAKER AFTER HOTTER-THAN-EXPECTED
INFLATION DATA (0900 EST/1400 GMT)
U.S. equity index futures are lower in the wake of the
release of the latest data on inflation.
The January core PCE price index month-over-month and
year-over-year were both above estimates. Personal income
month-over-month, however, came in below the estimate:
The data has decreased the market's perception that the Fed
delivers another modest interest rate increase at its March
21-22 FOMC meeting slightly. According to the CME's FedWatch
Tool, the probability of a 25 basis point rate hike is now at
67% from 70% just prior to the numbers being released. There is
now a 33% chance that the Fed raises rates 50 basis points at
its next meeting vs 30% just before the data came out.
E-mini Nasdaq 100 futures are now off more than
1.5%. That's vs a decline of about 1% from just before the
numbers were released.
All S&P 500 sector SPDR ETFs are quoted down in premarket
trade. Tech and consumer discretionary are
taking the biggest hits.
With the weakness, the S&P 500 index , which ended
Thursday at 4,012.32, can threaten a number of support levels.
The support line from the October low is now around 3,996, while
the 50-day moving average (DMA), will be around 3,980. The
January 25 low was at 3,949.06, and the 200-DMA should reside
around 3,940.
Regarding the inflation data, Gene Goldman, chief investment
officer at Cetera Investment Management, said "The market
reaction is appropriate. The 2-year Treasury yield is rising and
stocks are falling because this suggests the Fed will be hawkish
for longer than the market had hoped."
Goldman added, "The big surprise was that while the personal
spending was higher than expected but the savings rate picked
up. Although its old data it continues to confirm that the
economy was strong. If the Fed knew this they would've been more
aggressive."
"I'd say 50 basis point is on the table but we get a lot of
data between now and the March meeting. The dot plot will be
higher."
Here is a snapshot of where markets stood shortly before
0900 EST:
(Terence Gabriel, Sinéad Carew)
*****
FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT
- CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
