Fear of Rate Hikes Drives Down Futures

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On Wednesday, U.S stock futures shed over 1 percent following that revealed U.S. consumer prices were higher-than-expected last month, with core inflation recording its largest gain in a year. This stimulated fears among traders that interest rates will come at a quicker pace than previously anticipated, driving up U.S. bond yields.

The Labor Department reported that the Consumer Price Index increased 0.5 percent in January, as households paid more for gasoline, rentals and healthcare. Excluding the unstable food and energy components, the CPI gained 0.3 percent, the largest gain seen since last January. Though, the year-on-year rise in the core CPI remained the same last month at 1.8 percent.

Another report revealed that January’s U.S. retail sales dropped 0.3 percent. This was the largest drop in almost a year and generated fear regarding the growth of the economy.

“In some ways you would say this is the worst possible number for U.S. equities: extremely weak U.S. retail sales and a higher CPI. I think there is less to the numbers than meets the eye, however,” said Steven Englander, head of research and strategy at a capital management firm.

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“It does play into the fears that we are getting into a different inflation regime than we were before. The last ten years was below target inflation and now the expectations are adjusting upwards, which means the Fed is not as friendly.”


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By 9:10 a.m. EST, Dow e-minis were down 152 points, or 0.62 percent, with 81,595 contracts traded. S&P 500 e-minis were down 16 points, or 0.6 percent, with 433,260 contracts traded. Nasdaq 100 e-minis were down 44.5 points, or 0.68 percent, on volume of 92,441 contracts.

Before the inflation data was released at 8:30 a.m. EST, U.S stock futures were up around 0.5 percent.

The Consumer Price Index data increased concerns of accelerated inflation that was sparked from January’s report that was released earlier this month. The jobs report was an influence that prompted the sell-off last week in the stock market.

The yields on the benchmark U.S. 10-year Treasury bonds hit a session high of 2.8730, just below the four-year high of 2.902 hit on Monday. The CBOE Volatility index, or Wall Street’s fear gauge, was last at 23.52 points.

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