Stocks, Debt Yields Fall Against US CPI, Bond Auctions Poor

NEW YORK / LONDON, July 13 (Reuters) – Bond yields surged and global stock prices fell after hitting new highs on Tuesday as the biggest rise in US inflation in 13 years rocked investors who fear that the rise in interest rates does not put an end to a stock rally that has doubled in price from the lows of 2020.

The yield on US Treasury debt initially fell following news that the US consumer price index jumped 5.4% year-on-year in June, the largest increase since August 2008, a indicated the Department of Labor. Read more

But a weak Treasury auction triggered a 4.7 basis point jump in the 10-year benchmark rating to 1.41% after initially falling to 1.343% after the CPI data was released.

The spike in inflation followed an increase of 5.0% in the 12 months to May, while the CPI rose 0.9% month over month after advancing 0, 6% in May, gains that annoyed investors.

Wall Street stocks initially took the CPI data in stride, pushing up tech stocks which typically thrive with low interest rates.

The $ 24 billion of 30-year bonds were sold for a yield of 2.00%, more than two basis points above the level where the debt traded before the auction.

The surge in inflation is ultimately a negative threat in a market that has seen a remarkable rally from the March 2020 lows, said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

“Inflation isn’t the worst news for stocks, but it’s really bad news for bonds,” Meckler said. “You are starting to see some of the potential negatives that could end this incredible rally this year.”

MSCI’s global equity index (.MIWD00000PUS), which tracks shares of 50 countries, fell 0.14% to close at 726.33, after previously setting a new high of 728.77. In Europe, the broad FTSEurofirst 300 index (.FTEU3) rose 0.07% to a record close of 1,779.34.

On Wall Street, the Dow Jones Industrial Average (.DJI) lost 0.31% to 34,888.79, the S&P 500 (.SPX) lost 0.35% to 4,369.21 and the Nasdaq Composite (.IXIC ) lost 0.38% to 14,677.65.

Equity investors could re-enter the market to buy “at the bottom of the wave” as investors wait to see if the Federal Reserve takes aggressive action to stop inflation from rising, Meckler said.

Federal Reserve Chairman Jerome Powell testifies before Congress Wednesday and Thursday.

“Much of this will play into the Fed’s transitional history,” Gennadiy Goldberg, interest rate strategist at TD Securities in New York, said of the CPI data. “You can argue that a lot of this (spike in inflation) is due to the recovery.”

The dollar index, which tracks the greenback against a basket of six currencies, rose 0.56% to 92.778. The euro fell 0.70% to $ 1.1776, while the Japanese yen was up 0.24% to $ 110.6200.

Overnight in Asia, the largest MSCI Asia-Pacific equity index outside of Japan (.MIAPJ0000PUS) rose 1%, its best daily gain since late June, led by a 1.6% gain in Hong Kong (.HSI), where tech stocks rose significantly. The Japanese Nikkei (.N225) was up 0.5% while Australian stocks (.AXJO) ended broadly flat.

In Hong Kong, tech giant Tencent Holdings Ltd (0700.HK) jumped 3.9% after China’s competition regulator on Tuesday approved plans to privatize China’s No.3 search engine, Sogou Inc (SOGO .N), in a $ 3.5 billion deal.

Eurozone government bond yields have fallen in line with those on US Treasuries in recent weeks and are approaching their lowest levels since early April.

The German 10-year bond yield was unchanged at -0.297%, close to a three-month low of -0.344% reached last week.

The South African rand fell to its lowest level in three months, slipping 1.2% to 14.4000 against the dollar, as violence escalated following the imprisonment of former President Jacob Zuma . Read more

Brent crude appreciated from $ 1.33 to $ 76.49 per barrel. US crude rose $ 1.15 to $ 75.25 a barrel.

Gold was little changed as a firmer dollar offset support for bets that the Fed is unlikely to respond to rising US inflation with immediate monetary tightening.

US gold futures were up 0.2% to $ 1,809.90 an ounce.

Reporting by Herbert Lash; additional reporting Karen Brettell and Saqib Ahmed in New York, Karen Pierog in Chicago, Julie Zhu in Hong Kong; Sujata Rao and Vidya Ranganathan; Editing by Stephen Coates, Emelia Sithole-Matarise, Gareth Jones, Dan Grebler and Sonya Hepinstall

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