Wall Street stocks and Treasury bond prices fell on Tuesday ahead of Wednesday’s release of the closely watched U.S. consumer price index, which is expected to influence the U.S. Federal Reserve’s plans for monetary policy tightening. .
In government bond markets, the yield on the two-year Treasury bill, which moves with interest rate expectations, rose 0.05 percentage points to 3.27%. The 10-year yield, which moves with inflation and growth expectations, added 0.03 percentage point to 2.79%. Yields move inversely to price.
Economists polled by Reuters expect headline inflation to have risen 0.2% from June to July, core inflation – not including food and energy costs – is expected to have risen 0.5% . They expect inflation to have reached 8.7% on an annual basis, slightly below the June figure.
“A higher-than-expected inflation print will lead to a new round of hawkish expectations from the Fed,” said Patrick Moonen, senior strategist at NN Investment Partners. “Then the balance could shift to value stocks, like financials. On the other hand, if it’s better than expected, [high-quality] growth stocks can continue to perform well.
Recent data from the United States showed that inflation has continued to rise in recent months, the Fed’s favorite inflation indicator, the core personal consumption expenditure index and the latest report on the employment cost index, which tracks wages and benefits, has also risen in recent weeks.
Fed Chairman Jay Powell has taken a meeting-by-meeting approach to rate hikes, rather than providing advice ahead of time. Markets are pricing in the possibility of another 0.75 percentage point hike at the central bank’s next policy meeting in September.
U.S. stocks were dragged lower on Tuesday after chipmaker Micron Technology warned of slowing consumer demand, raising concerns about the sector’s outlook. Shares of the US group fell nearly 4% after it said appetite for chips used in personal computers and smartphones was waning as customers curb spending.
Investor concerns over consumer demand sent the Nasdaq Composite down 1.2% and the benchmark US S&P 500 index down 0.4%.
The warning added to bearish sentiment in the sector after its counterpart Nvidia’s disappointing results on Monday. The broader Philadelphia Semiconductor index fell 4.6%.
In Germany, Adidas and Puma fell 3.4 and 4.6% respectively, while industrial giant Siemens fell 2.6% after disappointing results on Monday. The hit to consumer companies helped push the country’s Dax index down 1.1% at the close, while Europe’s Stoxx 600 lost 0.7%.
In Asia, Hong Kong’s Hang Seng index closed down 0.2%, while Japan’s Topix lost 0.7%, led by a 7% drop in SoftBank shares after the conglomerate announced on Monday a record loss of $23 billion for the first quarter.