Stocks fall and US Treasury yields rise on renewed US interest rate fears

European stocks fell and US Treasury yields rose in early trade on Friday, as robust economic data and aggressive comments from officials fueled fears that the Federal Reserve would keep interest rates high to fight inflation.

The Europe-wide Stoxx 600 lost 1 percent, the German Dax 1.1 percent. France’s Cac 40 was also down 1 percent after hitting a record intraday high on Thursday.

Those declines followed overnight falls on Wall Street, where the blue-chip S&P 500 index had its worst day in a month. Investors were unsettled by producer price inflation data, which tracks wholesale prices, which rose at a 6 percent annual rate in January, compared with 6.2 percent in December, but well above the consensus estimate of 5.4 percent.

Fund managers and economists have been alert for signs of persistent inflation, with the latest data already pushing up the level at which interest rates are expected to peak and reducing the number of Fed rate cuts markets are pricing in later this year .

Meanwhile, more central bank officials spoke out in favor of staying the course of high interest rates, with Federal Reserve Bank of Cleveland President Loretta Mester saying she had “compelling reason” for a half-percentage-point hike at its next meeting and St. Louis Fed Chairman James Bullard also said he wouldn’t rule out a hike of the same magnitude.

The 10-year US Treasury yield rose 0.07 percentage point to 3.9%, the highest since November. The yield on the two-year bond, which is more sensitive to changes in interest rates, rose 0.08 percentage point to 4.7 percent.

The 10-year Bund yield rose 0.06 percentage points to 2.55 percent, its highest level in a year.

Futures tracking the blue-chip S&P 500 fell 0.8 percent, while contracts for the tech-heavy Nasdaq 100 fell 1 percent.

The dollar index, which measures the greenback against a basket of six peer currencies, rose 0.6 percent while the euro fell 0.3 percent.

“We have called for the dollar to strengthen on the US data. The producer price index has been high and the growth story is looking better,” said Francesco Pesole, FX Strategist at ING. “We’ve had a lot of hawkish comments from the Fed over the past week, while at the ECB it’s clearer that there’s a spectrum of ideas and we haven’t seen a lot of European data.”

Brent crude prices fell 1.9 percent to $83.53 a barrel, while the US WTI crude oil index fell 2 percent to $76.86.

Hong Kong’s Hang Seng index fell 1.3 percent, while China’s CSI 300 fell 1.4 percent. Stocks fall and US Treasury yields rise on renewed US interest rate fears

Adam Bradshaw

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