Investors turned away from a strong inflation print on Thursday, with the U.S. dollar rolling back from an 18-month high, as they considered a succession of shakeouts in the shares of AI data center companies. The turnaround eased worries about the latest economic data, helping government bonds recover.
New data from the BLS shows that U.S. producer prices ticked up the most in four and a half years this September. The general rise in both goods and services prices is a sign that inflationary pressures are getting wider based and are not just confined to energy prices.
Retail sales increased more than expected last month, driven in part by increases in the prices of gasoline and other items, even as hot inflation data hit the markets. The weekly number of jobless claims reported by the U.S. Department of Labor edged up slightly, offering a sign of a strong labor market and fairly solid consumer demand in the meantime.
But some subdued comments from Federal Reserve officials dampened hopes for a soon-ish interest-rate increase. The speed of inflation is a concern for some market analysts, who are seeing an unsustainable rate of inflation, and that has caused traders to take an eye towards the dollar in a somewhat negative direction.
The dollar index, a gauge of the greenback against a basket of major peers, tumbled 0.45% to 101.99 after surging highest since 2010 last week. This pullback allowed the euro to bounce 0.56% from its own 18-month trough to reach $1.1218.
The sterling rose 0.64% to $1.3275 in Europe following the release of the UK economy’s 0.1% growth in August, which was unexpected. Yet the Australian dollar fell to $0.6919 after a drop in the nation’s employment and the Japanese yen rose marginally to 158.08 to the dollar.
The market was volatile following renewed safe-haven demand for Treasuries fuel by renewed worries over the high level of debt in AI firms. The following sell-off in tech and chip stocks provided much relief to bonds and kept yields in check in the face of the obvious inflationary signals.
The odds of a rate hike at the central bank’s meeting this coming Oct. 27-28 have risen to 73%, with traders seeing a 27% chance they will leave rates unchanged. Some Fed officials— Vice Chair for Supervision Michelle Bowman and San Francisco Fed President Mary Daly—gave a nod to the need for more clarity before the bank moves.
Investors now are focused on comments by influential financial officials during the annual meetings of the International Monetary Fund and World Bank in Bangkok. The Fed is in its blackout period soon, so market sentiment will likely stay across the board, with the geopolitical uncertainty in the Ukraine, Russia and Iran playing a key role and the ongoing developments in the AI sector.
