European stocks fell and U.S. Treasuries yields rose on Friday as strong economic data and hawkish comments from central bank officials fueled fears that the Federal Reserve will keep interest rates high to fight inflation.
At the end of the morning in Europe-wide Stoxx 600 fell 0.7 percent, slightly more than earlier in the session, while the German Dax was 0.95 percent lower. France’s Cac 40 also lost 0.7 percent, after hitting a record high on Thursday.
The decline followed a night on Wall Street, where the blue-chip S&P 500 index had its worst day in a month. Investors were surprised by producer price inflation data, which tracks wholesale prices, which rose at an annual rate of 6 percent in January. This was down from 6.2 percent in December but higher than the consensus estimate of 5.4 percent.
Futures tracking the blue-chip S&P 500 fell 0.7 percent, while contracts for the technology-heavy Nasdaq 100 lost 0.9 percent.
Stocks have risen earlier in the week after the release of stronger than expected retail sales, and as traders await further clues on the Fed’s next move.
However, the release of producer price index data has fueled some lingering optimism. The yield on 10-year US Treasuries rose 0.06 percentage points on Friday to 3.9 percent, the highest since November. The yield on two-year bonds, which are more sensitive to changes in interest rates, rose 0.08 percentage points to 4.7 percent.
The yield on 10-year German Bunds rose 0.04 percentage points to 2.52 percent, the highest level in a year.
Fund managers and economists have been watching closely for signs of continued inflation, with new data pushing rates in markets to expect interest rates to rise and reducing the number of Fed rate cuts priced in later this year.
Meanwhile, more US central bank officials have opted to keep interest rates high, with Federal Reserve Bank of Cleveland president Loretta Mester saying on Thursday she saw a “compelling case” for a half-percentage-point hike next time. meeting, and St. Louis Fed president James Bullard also said he would not rule out an increase of the same size.
The dollar index, which measures the greenback against a basket of six peer currencies, rose 0.6 percent, while the euro slid 0.4 percent.
“We have asked the dollar to strengthen behind the US data. The producer price index is high and the growth story looks better,” said Francesco Pesole, FX Strategist at ING. “We had a lot of hawkish comments from the Fed last week, when it was more clear at the ECB that there is a spectrum of ideas, and we haven’t seen a lot of European data.”
Brent crude fell 2.4 percent to $83.11 a barrel, while the U.S. WTI crude oil index fell 2 percent to $76.46.
Hong Kong’s Hang Seng index fell 1.3 percent, while China’s CSI 300 fell 1.4 percent.