(CercleFinance.com) – The New York Stock Exchange should open sharply lower on Wednesday morning following the publication of higher-than-expected inflation figures which completely disrupted expectations regarding future rate cuts.
Half an hour before the opening, the ‘futures’ contracts on the major New York indices all showed losses of more than 1%, announcing a marked decline at the start of the session.
The Labor Department announced this morning that the rise in consumer prices in the United States accelerated last month due to high levels of electricity, housing and transportation prices.
Excluding energy and food products, two traditionally volatile categories, the annual inflation rate remained at 3.8% last month, while the consensus was hoping for a decline towards 3.7%.
These stronger than expected data – particularly in the services sector – fueled concerns about persistent inflation forcing the Fed to maintain its high rates for longer than expected.
The probability of a rate cut by the Fed in June fell from 61% last week to less than 18% following the publication of these figures, according to the CME Group’s Fedwatch tool.
It has now been five months that inflation figures have been gradually increasing, which means that the market can no longer ignore this acceleration by considering it as simply temporary.
‘These data suggest that the Federal Reserve will continue to stay on the sidelines for the moment and that it will postpone its first rate cut until the second half of the year, especially given the current strength displayed by the ‘economy’, underline Commerzbank analysts.
When Wall Street opened, European markets were trading on divergent notes. The German DAX fell by 0.1%, the Euro STOXX 50 lost 0.2% but the FTSE gained almost 0.4% in London.
On the foreign exchange side, the greenback is soaring compared to all the other major reference currencies, with the euro dropping by almost 0.7% to 1.0775 against the greenback.
On the government bond market, the yield on 10-year Treasuries, the true benchmark for the bond market, rose to almost 4.49% to reach its highest levels since November.
The market will take note at the start of the session of wholesalers’ stocks, then of weekly crude oil reserves.
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