US stocks fall and dollar strengthens on latest economic data

US stocks declined and the dollar strengthened on Thursday after fresh economic data added to investor concerns that interest rates are set to stay higher for longer than previously forecast.

Wall Street’s benchmark S&P 500 opened 0.5 per cent lower and the tech-heavy Nasdaq Composite slipped 0.9 per cent after US jobless claims fell to 190,000 in the week ending February 25, less than the 195,000 predicted. Tesla’s shares fell 6.9 per cent after the company failed to specify when a new model would launch or what it might cost.

US government bonds continued to slide, with the yield on the two-year Treasury — the bond most sensitive to inflation — rising 0.04 percentage points to 4.93 per cent, its highest level since 2007. The yield on the benchmark 10-year Treasury rose 0.08 percentage points to 4.07 per cent.

A measure of the dollar’s strength against a basket of six peers gained 0.5 per cent.

The moves come after a sobering few weeks for investors who had hoped central bank interest rates on both sides of the Atlantic were close to peaking.

“Attitudes are in the dumps,” said Mike Zigmont, head of trading and research at Harvest Volatility Management. “We haven’t had a positive data point or headline in a while and the wait is weighing on both stocks and bonds.”

Signs of persistent labour market tightness in the US, which raise the chance of higher interest rates, followed a smaller than expected decline in eurozone inflation, with prices in the bloc rising 8.5 per cent in February year on year. This was down from 8.6 per cent in January but more than the 8.2 per cent forecast by economists polled by Reuters.

Core inflation, which strips out volatile food and energy to give a clearer picture of underlying price pressures, rose to a new eurozone record of 5.6 per cent, up from 5.3 per cent the previous month. Economists had expected the figure to rise to 5.5 per cent.

Stronger than expected inflation data from Germany, Spain and France earlier this week meant “the surprise factor for a big number in the eurozone-wide figures was dampened”, said Tim Graf, head of European macro strategy at State Street Global Markets.

Europe’s Stoxx 600 rebounded from earlier losses, trading 0.1 per cent higher early in the afternoon. London’s FTSE 100 was down less than 0.1 per cent.

The February inflation figures nevertheless add to the pressure on the European Central Bank to continue raising interest rates in the months ahead.

“We have been forecasting a [half percentage point] hike at the [ECB’s] meeting in two weeks’ time and another in May, but further hikes at later meetings now look increasingly likely,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

Separate data out on Thursday showed the eurozone’s unemployment rate was unchanged at 6.7 per cent.

Asian markets declined on Thursday as investors reassessed the optimism over China’s economic recovery that had buoyed equities to strong gains a day earlier. Hong Kong’s Hang Seng index lost 0.9 per cent while Japan’s Topix declined 0.15 per cent and the China CSI 300 fell 0.2 per cent.

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