# Shares drop, yields shoot up after U.S. inflation data
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-05-11
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Global stocks drop as US inflation data raise rate hike
Meta Description: World shares and bond yields drop as U.S. inflation slows less than anticipated, reinforcing expectations of aggressive rate hikes by the Federal Reserve.
URL: https://financedigest.com/shares-drop-yields-shoot-up-after-u-s-inflation-datahtml

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By Danilo Masoni

MILAN (Reuters) – World shares turned lower on Wednesday and bond yields shot up after U.S. [data showed inflation](https://www.financedigest.com/european-shares-rise-as-us-inflation-data-signals-end-of-rate-hike-cycle.html "European shares rise as US inflation data signals end of rate-hike cycle") there slowed down less than expected last month, cementing expectations of aggressive rate hikes by the Federal Reserve.

U.S. [futures turned negative after data](https://www.financedigest.com/in-the-supply-chain-clean-data-is-the-fuel-of-the-future.html "In the supply chain, clean data is the fuel of the future") showed U.S. annual consumer price [growth slowed to 8.3% in April from 8.5% in March](https://www.financedigest.com/uk-recruiters-slow-pace-of-pay-growth-in-march-rec-survey-shows.html "UK recruiters slow pace of pay growth in March, REC survey shows"), suggesting that inflation has probably peaked. The number, however, was above the [8.1% analyst](https://www.financedigest.com/coffee-bean-grinders-market-is-set-to-witness-a-cagr-of-8-1-8-9-during-2021-2031-says-fmi-analyst.html "Coffee Bean Grinders Market is set to witness a CAGR of 8.1%- 8.9% during 2021-2031, Says FMI Analyst") had expected.

Paolo Zanghieri, senior economist at Generali Investments, said the [data confirmed the view that the return of inflation](https://www.financedigest.com/oil-jumps-on-lower-than-expected-us-inflation-data.html "Oil jumps on lower-than-expected US inflation data") to more tolerable values will take time.

Overall today’s [data add to the case of the strong](https://www.financedigest.com/dollar-advances-as-strong-u-s-data-backs-higher-rates-backdrop.html "Dollar advances as strong U.S. data backs higher rates backdrop") front-loading called for by (\|Fed Chair Jerome) Powell in the last meeting, who also suggested the possibility of two more 50bps rise in June and July,” Zanghieri said. However, this will keep concern on the possibility of a recession high, and ultimately weakening growth may [lead the Fed to temper it tightening after the summer.”](https://www.financedigest.com/move-over-pcl-greater-londons-suburbs-take-the-lead-this-summer.html "Move over PCL, Greater London’s suburbs take the lead this summer")

MSCI’s benchmark for [global stocks](https://www.financedigest.com/dollar-jumps-u-s-stocks-buck-global-rally.html "Dollar jumps, U.S. stocks buck global rally") was flat by 1247 GMT, having earlier risen as much as 0.3%. On Tuesday, the [index fell to its lowest level since November 2020 on fears Fed tightening could significantly slow down the global](https://www.financedigest.com/2017-global-payroll-complexity-index-reveals.html "2017 Global Payroll Complexity Index Reveals ") economy.

U.S. equity futures turned sharply negative, with the Nasdaq and S&P 500 e-minis down 1% and 0.6% respectively. The pan-European STOXX 600 [equity benchmark index also trimmed gains](https://www.financedigest.com/gaining-workplace-equity.html "Gaining workplace equity"), and was last up 0.2%.

Money markets ramped up bets of [Fed rate hikes](https://www.financedigest.com/asian-shares-gain-as-fears-about-rapid-fed-hikes-bank-crisis-fade.html "Asian shares gain as fears about rapid Fed hikes, bank crisis fade") by end-2022 to 208 basis points after the U.S. [inflation numbers](https://www.financedigest.com/uks-december-shopper-numbers-defy-inflation-and-rail-strikes-hit.html "UK’s December shopper numbers defy inflation and rail strikes hit"), compared to around 195 bps before.

Earlier in Asia, equities squeezed higher from [near two-year](https://www.financedigest.com/dollar-slides-from-near-two-year-high-amid-hawkish-signals-from-fed.html "Dollar slides from near two-year high amid hawkish signals from Fed") lows. [Chinese blue chips rose 1.4% after Shanghai officials said half the city had achieved “zero COVID”](https://www.financedigest.com/were-going-to-be-free-chinese-cheer-as-covid-curbs-are-loosened.html "‘We’re going to be free’: Chinese cheer as COVID curbs are loosened") status, and after U.S. President Joe [Biden said he was considering eliminating Trump era tariffs on China](https://www.financedigest.com/biden-signs-bill-to-boost-u-s-chips-compete-with-china.html "Biden signs bill to boost U.S. chips, compete with China").

Chinese data released on Wednesday, however, showed consumer [prices rose 2.1% from a year](https://www.financedigest.com/hong-kong-home-prices-drop-15-6-in-2022-snap-13-years-of-gain.html "Hong Kong home prices drop 15.6% in 2022, snap 13 years of gain") earlier, more than expected and at the fastest pace in five months, partly due to food prices.

YIELDS SHOOT UP

After falling to their lowest levels in almost a week earlier on Wednesday, benchmark 10-year Treasury yields [turned positive after the inflation](https://www.financedigest.com/how-finance-leaders-can-turn-the-inflation-challenge-into-opportunity.html "How finance leaders can turn the inflation challenge into opportunity") data, marching back towards the three-year high of 3.203% hit on Monday.

The 10-year yield was last up 6 basis points on the day to 3.0502%, while the 2-year yield, which often reflects the [Fed rate outlook](https://www.financedigest.com/asia-shares-creep-higher-wary-on-fed-and-boj-outlooks.html "Asia shares creep higher, wary on Fed and BOJ outlooks"), jumped 11 bps to 2.717%.

Euro area government [bond yields](https://www.financedigest.com/wall-st-stocks-fall-bond-yields-rise-as-china-drops-quarantine-rule.html "Wall St stocks fall, bond yields rise as China drops quarantine rule") also sold off following the U.S. data, sending [German 10-year yields](https://www.financedigest.com/german-yields-steady-spreads-tighten-after-recent-repricing.html "German yields steady, spreads tighten after recent repricing") up 8 bps to 1.084%.

Bets over aggressive [Fed tightening have also supported the dollar](https://www.financedigest.com/dollar-pauses-for-breath-as-fed-swings-into-focus.html "Dollar pauses for breath as Fed swings into focus") this year.

The [dollar index](https://www.financedigest.com/dollar-index-jumps-after-u-s-retail-sales-show-surprise-rebound.html "Dollar index jumps after U.S. retail sales show surprise rebound"), which measures its performance against six main peers, reversed earlier weakness and was last up 0.1% to 104.04, closer to the two-decade high of 104.19 reached at the start of the week.

The [Fed last week raised interest rates by 50 basis points and Chair Jerome Powell said two more such hikes](https://www.financedigest.com/shares-fall-with-oil-prices-amid-concerns-about-u-s-fed-rate-hikes.html "Shares fall with oil prices amid concerns about U.S. Fed rate hikes") were likely at the upcoming policy meetings.

There has also been speculation in markets the U.S. central [bank will need to move by 75 basis points at one meeting and currently money](https://www.financedigest.com/marketmind-banks-are-leaking-money.html "Marketmind: Banks are leaking money") markets are pricing over 190 basis points of combined rate hikes by year.

The current problem is that the market is convinced that the Fed is determined to fight [inflation](https://www.financedigest.com/hungarys-booming-wedding-market-doused-by-soaring-inflation.html "Hungary’s booming wedding market doused by soaring inflation") and therefore willing to tolerate market volatility and some demand destruction more than in the past. Personally, I’m less convinced of this determination,” said Giuseppe Sersale, [fund manager](https://www.financedigest.com/why-ai-can-be-the-key-to-success-for-fund-managers-in-the-post-covid-landscape.html "Why AI can be the key to success for fund managers in the post-COVID landscape") at Anthilia.

Morgan Stanley forecasts 2022 global [economic growth](https://www.financedigest.com/different-employee-engagement-outcomes-for-u-s-and-canadian-companies-amidst-continued-economic-growth-pressures.html "DIFFERENT EMPLOYEE ENGAGEMENT OUTCOMES FOR U.S. AND CANADIAN COMPANIES AMIDST CONTINUED ECONOMIC GROWTH Pressures") to be less than half of last year’s at 2.9%, down from a previous estimate of 3.2%. The U.S. bank also [cut its year-end target](https://www.financedigest.com/eu-sets-recycling-reuse-targets-to-cut-packaging-waste.html "EU sets recycling, reuse targets to cut packaging waste") for the S&P 500 by 11% to 3,900 points, while raising its U.S. 10-year yield forecast by 55 bps to 3.15%.

Oil bounced back, buoyed by supply concerns as the [European Union works on gaining](https://www.financedigest.com/european-shares-set-for-weekly-gain-on-u-s-inflation-outlook.html "European shares set for weekly gain on U.S. inflation outlook") support for a ban on Russian oil. \[O/R\]

Brent rose 2.6% to $105.12 a barrel and U.S. crude rose 3% to $102.77.

Spot gold dipped 0.1% to $1,836.2 an ounce.

(Reporting by Danilo Masoni in Milan, Sujata Rao in [London and Alun John in Hong Kong](https://www.financedigest.com/citadel-accelerates-hiring-push-in-hong-kong-and-london.html "Citadel accelerates hiring push in Hong Kong and London"), Editing by William Maclean and Tomasz Janowski)


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