US futures drop as inflation data cements Fed increase

BLOOMBERG

US equity futures retreated as a rally in tech stocks lost steam and persistent inflationary pressures cemented expectations for higher rates in the US and Europe. Treasuries advanced.
Contracts on the S&P 500 and the Nasdaq 100 slipped as Amazon.com Inc’s warning after the market close on growth in its key cloud computing business soured the mood. Treasuries recouped some of the losses, with the 10-year benchmark yield falling about seven basis points. The policy-sensitive two-year rate remained above 4%.
Markets remain on edge, as data on inflation reinforced expectations of a Federal Reserve interest rate hike next week, and possibly in June.
The personal consumption expenditures price index excluding food and energy, one of the Fed’s preferred inflation gauges, rose 0.3% in March for a second month. Compared with a year ago, the measure was up 4.6%. The overall PCE price index increased 0.1% from the prior month, restrained by a decline in energy costs, Commerce Department data showed.
“What looks like sticky contemporaneous inflation remains an issue, preventing the market from getting too carried away on the rate-cutting phase to come in subsequent quarters,”’ wrote Padhraic Garvey, head of global debt and rates strategy at ING Financial Markets.
Analysts at Berenberg said equities’ strong year-to-date gains had been driven by resilient earnings and receding pessimism on economic growth, but “risks are skewed to the downside over the coming months, with headwinds from tighter policy, margin headwinds and US recession.”
US equities enjoyed the biggest daily gain since January, thanks to solid earnings from technology firms, including Meta Platforms Inc and Intel Corp. That was before the Amazon warning and disappointing results from Snap Inc and Pinterest.
The Bank of Japan (BOJ), by contrast, renewed its commitment to stimulus. It left its short-term policy rate at minus 0.1% in the first meeting under new governor Kazuo Ueda, maintained its 0.5% ceiling for 10-year bond yields and launched a policy review that may take one-and-a-half years.
Japanese stocks surged 1.5% while the yen tumbled 1.6% lower versus the dollar. The greenback gained against a basket of Group-of-10 currencies.
Elsewhere, oil prices headed for a sixth straight monthly decline, weighed down by slowdown concerns in the US and Asia. S&P 500 futures fell 0.3% in New York.