Stocks drop as data fuels inflation, rate hike concerns

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(Reuters) – Stocks lost ground while the dollar rose with Treasury yields on Thursday after economic data showed higher than expected U.S. producer prices for January while jobless claims fell, feeding worries that the Federal Reserve would keep aggressively tightening policy to fight inflation.

The number of Americans filing for unemployment benefits unexpectedly fell 1,000 last week to a seasonally adjusted 194,000, according to the Labor Department. This was below economist forecasts for 200,000.

Another Labor Department report showed monthly producer prices accelerating in January with the producer price index (PPI) for final demand up 0.7% compared with economist expectations for 0.4%. And in the 12 months through January, PPI increased 6.0% compared with expectations for a 5.4% increase.

Investors also worried about hawkish comments from Federal Reserve Bank of Cleveland President Loretta Mester about the last rate hike and what future changes are needed.

“We’ve had a trend of strong data. The PPI was the latest, the straw that broke the camel’s back making investors think we should be concerned. Then 15 minutes later Meister came out and said she saw a compelling case for 50 basis points rate hike at the meeting earlier this month,” said Michael O’Rourke, chief market strategist at JonesTrading.

“With the strong data we’ve had it gets people concerned the Fed is behind the curve on inflation once again.”

On Wednesday, another report showed U.S. retail sales increased in January by the most in nearly two years. On Tuesday, data showed U.S. consumer prices accelerated in January.

The Dow Jones Industrial Average fell 251.4 points, or 0.74%, to 33,876.65, the S&P 500 lost 28 points, or 0.68%, to 4,119.6 and the Nasdaq Composite dropped 78.23 points, or 0.65%, to 11,992.37.

The pan-European STOXX 600 index rose 0.11% and MSCI’s gauge of stocks across the globe shed 0.29%.

Emerging market stocks rose 0.45%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.61% higher, while Japan’s Nikkei rose 0.71%.

In Treasuries after the data, 10-year yields touched their highest levels since Dec. 30 as investors bet that the Fed would hike rates higher for longer to tackle inflation.

Benchmark 10-year notes were up 3.3 basis points to 3.840%, from 3.807% late on Wednesday. The 30-year bond was last up 3.3 basis points to yield 3.8848%, from 3.852%. The 2-year note was last was up 2.4 basis points to yield 4.6507%, from 4.627%.

In currencies, while the U.S. dollar pared some of its gains it had risen sharply after the data release as investors were also betting on tighter policy for some time.

The dollar index, which measures the greenback against a basket of major currencies, rose 0.183%, with the euro down 0.13% to $1.0675.

The Japanese yen weakened 0.01% versus the greenback at 134.16 per dollar, while Sterling was last trading at $1.2011, down 0.12% on the day.

In commodities, oil prices fluctuated in a narrow range as the market weighed signals of a robust U.S. economy and a Chinese demand recovery with a build in U.S. crude stocks and a stronger U.S. dollar.

Spot gold dropped 0.2% to $1,832.26 an ounce. U.S. gold futures fell 0.19% to $1,830.80 an ounce.

But while stocks were out of favor on Thursday investors were more attracted to other risk assets with Bitcoin last rising 1.19% to $24,621.00 putting it on track for its third straight day of gains. Earlier in Thursday’s session the crypto currency hit $24,895, its highest level since mid-August.