Wall Street down as high inflation sparks worries about timing of interest rate cuts

US stocks posted only second weekly loss in 16 weeks

Shoppers use a self-checkout counter at a Whole Foods grocery store in Washington. The US consumer price index rose 0.3 per cent last month, rising 3.1 per cent on an annual basis, down from 3.4 per cent in December. EPAShow less

Global stock markets ended mixed on Friday, with Wall Street declining on investor worries over when the Federal Reserve would begin long-anticipated interest rate cuts at a time of high inflation.

US inflation came in higher than expected in January, underpinning expectations that it will be some time before it reaches the US central bank's long-term target.

The US consumer price index rose 0.3 per cent last month, the Labour Department reported on Tuesday, rising 3.1 per cent on an annual basis, down from 3.4 per cent in December. Core CPI – which excludes food and energy – rose 3.9 per cent annually.

Economists surveyed by FactSet estimated inflation would fall to 2.9 per cent year-on-year, with core CPI at 3.7 per cent. Had inflation fallen in line with expectations, it would have been the first time since 2021 it would have sat below 3 per cent.

That triggered alarm bells for the stock market, dashing hopes that the Fed, which had pleaded for patience, would begin cutting interest rates soon.

Other US economic data this week dampened sentiment, including retail sales that widely declined in January and a fall in US factory production, owing to harsh winter conditions.

The US producer price index, meanwhile, climbed 0.3 per cent last month, more than anticipated.

Despite the uninspiring data, Wall Street could still sustain its rally, Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note.

“We are coming to a point where the economic data becomes meaningless. Whatever the data prints, the US stock markets find a positive narrative to keep the rally going,” she said.

However, it is, “of course, blind optimism; investors are blinded by the brilliance of the rate cuts at the tunnel’s end”.

Wall Street fell to a rare weekly loss as a result, its second in 16 weeks.

The S&P 500 settled 0.5 per cent lower from its all-time high on Thursday, the Dow Jones Industrial Average retreated 0.4 per cent and the tech-heavy Nasdaq Composite ended 0.8 per cent lower.

For the week, the S&P 500 gave up 0.4 per cent, the Dow inched down 0.1 per cent and the Nasdaq shed 1.3 per cent. For 2024, they remain up, having added 4.9 per cent, 2.5 per cent and 5.1 per cent, respectively.

In Europe, major equities settled higher, with London's FTSE 100 surging 1.5 per cent, driven by a rebound in UK retail sales last month, a day after it was reported that Britain had entered a technical recession.

British retail sales jumped 3.4 per cent in January, a sharp turnaround from a 3.3 per cent drop in December, government data showed.

Elsewhere in Europe, Paris' CAC 40 added 0.3 per cent and Frankfurt's DAX climbed 0.4 per cent.

Earlier in Asia, In Asia, Tokyo's Nikkei settled 0.9 per cent higher to post a record after 34 years, despite Germany overtaking it as the world's third-largest economy and entering a recession towards the end of 2023.

Hong Kong's Hang Seng Index surged 2.5 per cent, while the Shanghai Composite was closed for the holidays.

Traders are seen on the floor of the New York Stock Exchange. US economic data this week had dampened investor hopes for an earlier interest rate cut from the Federal Reserve. Bloomberg

In commodities, oil prices settled higher on Friday and posted a weekly gain amid hopes that the Fed will start cutting interest rates soon, which is expected to boost crude demand.

Brent reversed earlier losses to close 0.74 per cent higher at $83.47 a barrel, while West Texas Intermediate added 1.49 per cent to settle at $79.19 a barrel.

Gold, meanwhile, rallied to close higher but still posted a second weekly loss in a row, also on concerns over the Fed's interest rate cuts.

US gold futures added about 0.5 per cent to $2,024.10 per ounce. The precious metal, a hedge against inflation, lost about 0.6 per cent this week.