Sticky inflation pushes Wall Street toward weekly losses, rate hikes fears

Wall Street is poised to extend its slide Friday, one day after U.S. markets suffered their biggest drop in a month on an inflation reading that came in hotter than expected.

Futures for the Dow Jones industrials slid 0.5 per cent and the S&P 500 dipped 0.7 per cent . Oil prices fell more than 3 per cent.

The S&P 500 lost 1.4 per cent Thursday following news that inflation at the wholesale level slowed less than economists had expected. That hot reading echoed inflation data earlier in the week at the consumer level that suggests inflation isn't falling as steadily as was hoped, though Fed Chair Jerome Powell has warned of an uneven return to more normal levels of inflation.

Stocks have gyrated on worries that persistently high inflation will push the Federal Reserve to get even more aggressive on interest rates. Higher rates tend to cool inflation, but they also raise the risk of recession of spending trails off too much.

Continued strength in the inflation data suggests the Fed's work is still not finished, and risks of a longer cycle are rising, Stephen Innes of SPI Asset Management said in a report.

In Europe at midday, Germany's DAX sank 0.9 per cent , the CAC 40 in Paris gave up 0.7 per cent and Britain's FTSE 100 slipped 0.3 per cent.

In Asian trading, Tokyo's Nikkei 225 fell 0.7 per cent to 27,513.13 and the Kospi in South Korea sank 1 per cent to 2,450.20.

Hong Kong's Hang Seng lost 1.3 per cent to 20,836.08. Losses were amplified by news that a major tech industry dealmaker, Bao Fan, apparently has gone missing.

Shares in one of China's top investment banks, China Renaissance, plunged Friday after the company said in a filing to Hong Kong's stock exchange that it had lost touch with Bao, its founder. Bao's disappearance follows a crackdown on technology companies in the past two years that officials in China said had been wrapped up.

The Shanghai Composite index gave up 0.8 per cent to 3,224.02 and Australia's S&P/ASX 200 shed 0.9 per cent to 7,346.80. Taiwan's benchmark lost 0.5 per cent . Bangkok's SET index fell 0.7 per cent after the government reported the economy grew at a meager 2.6 per cent annual pace in 2022.

On Thursday, the Dow Jones Industrial Average lost 1.3 per cent , while the Nasdaq composite dropped 1.8 per cent.

Thursday's inflation report showed that prices at the wholesale level were 6 per cent higher last month than a year earlier, slower than December's rate but worse than expected. Perhaps more concerning was that inflation accelerated in January on a month-to-month basis even after stripping out prices for food, energy and other layers.

The inflation report darkened the mood on Wall Street along with a batch of other data painting a mixed picture of the economy.

Fewer workers applied for jobless benefits last week than expected, suggesting that layoffs remain low across the economy. That's good news for workers and another signal of strength for the job market, but the Fed worries it could also add upward pressure on inflation.

Loretta Mester, president of the Federal Reserve Bank of Cleveland, said in a speech Thursday that she saw a compelling economic case at the Fed's meeting earlier this month to raise rates by twice the 25 basis points it ended up implementing.

In other trading Friday, U.S. benchmark crude oil lost USD2.73 to USD 75.76 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international pricing basis, gave up USD2.82 to USD 82.32 per barrel.

The dollar rose to 134.78 Japanese yen from 133.99 yen. The euro slipped to USD 1.0620 from USD 1.0673.