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A man is reflected in an electronic stock board outside a securities firm in Tokyo, Japan, on Tuesday, Feb. 6, 2018.

(bloomberg)

(Bloomberg) -- U.S. stock futures tumbled and Treasury yields climbed after data showing consumer prices rose more than forecast last month fueled speculation the Federal Reserve will quicken its pace of monetary tightening.

Contracts on the S&P 500 Index dropped 0.9 percent, signaling equities will halt a three-day rebound from the steepest selloff in two years. Futures were higher by 0.5 percent before the inflation report. The 10-year Treasury yield jumped back toward a four-year high and the Bloomberg dollar index rose from the lowest in more than a week.

U.S. consumer prices increased 0.5 percent in January, exceeding the 0.3 percent estimate of economists, adding to signs of an inflation pickup that have roiled financial markets this month. At the same time, retail sales unexpectedly declined, indicating consumer demand in the first quarter may cool.

Investors must now weigh whether the increase in price acceleration will force the Fed to raise rates faster than the market currently anticipates and if the retail sales signal a potential crack in economic fundamentals. New Fed Chairman Jerome Powell suggested Tuesday that officials would forge ahead with gradual tightening even as it keeps an eye on financial-system risks following the recent equity rout.

“The concern is that the Fed takes a more aggressive stance,” said Ernie Cecilia, the chief investment officer at Bryn Mawr Trust Co. “Higher rates at both the short and long end would be higher competition to stocks. It gives investors other alternatives.”

Stocks tumbled into a correction last week and yields pushed higher on the heels of a jobs report that signaled a tightening labor market. Stocks and bonds have been in a tug-of-war for over a week, with sinking equities sparking demand for the haven of Treasuries, mitigating the selloff in fixed income.

In Europe, stocks advanced as investors traded on earnings from companies including Credit Suisse Group AG. Bunds advanced, along with other core European bonds, even as data showed the euro-area economy maintained its growth pace as policy makers prepare to wind down stimulus. The yen’s rise to a 15-month high weighed on Japan’s Topix index, while shares in Hong Kong and Seoul gained and those in Shanghai fluctuated before a weeklong Lunar New Year holiday.

Elsewhere, WTI crude oil drifted below $59 a barrel after its worst week in two years as fears over rising U.S. supplies curb investor optimism. South Africa’ rand headed for its strongest level against the dollar in almost three years after the ruling African National Congress said it will remove President Jacob Zuma from office tomorrow through a parliamentary vote of no confidence.

Terminal users can read more in our markets blog.

Here are some important things to watch out for this week:

  • Lunar new year celebrations for the Year of the Dog begin, affecting China, Hong Kong, Taiwan, Singapore, Malaysia and Indonesia. Chinese mainland markets are closed Feb. 15-21.
  • Earnings season continues in full swing with reports including companies from Bunge to Nestle.

These are the main moves in markets:

Stocks

  • Futures on the S&P 500 fell 0.9 percent as of 9:04 a.m. in New York.
  • The Stoxx Europe 600 Index increased 0.2 percent.
  • The MSCI Asia Pacific Index rose 0.3 percent.

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2 percent after hitting the lowest in more than a week.
  • The euro declined 0.3 percent to $1.2314.
  • The Japanese yen increased 0.7 percent to 107.1 per dollar, the strongest in 15 months.
  • South Africa’s rand jumped 0.7 percent to 11.8788 per dollar.

Bonds

  • The yield on 10-year Treasuries rose three basis points to 2.86 percent.
  • Germany’s 10-year yield rose one basis point to 0.75 percent.

Commodities

  • West Texas Intermediate crude fell 1.1 percent to $58.57 a barrel, the lowest in almost eight weeks.
  • Gold fell 0.1 percent to $1,328.02 an ounce.

--With assistance from Adam Haigh Blaise Robinson Divya Balji Robert Brand Todd White and Randall Jensen

To contact the reporters on this story: Jeremy Herron in New York at jherron8@bloomberg.net, Sarah Ponczek in New York at sponczek2@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh

©2018 Bloomberg L.P.

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