US stocks dip and bond yields rise after stronger-than-forecast inflation data

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US stocks slipped on Friday after producer price inflation data came in above market expectations, heightening investors’ concerns that the world’s largest economy could keep rates higher for longer.

Wall Street’s benchmark S&P 500 closed 0.1 per cent lower while the tech-focused Nasdaq Composite fell 0.7 per cent.

Friday marked the second consecutive week of losses for both indices. It was the first time the Nasdaq has had back-to-back weekly declines since December, and the first time for the S&P 500 since May. The biggest weekly drop in 11 months for chipmaker Nvidia, which is one of the top-weighted stocks in the S&P 500 and Nasdaq, did little to help the indices’ fortunes. Nvidia shares fell 9.5 per cent over the five trading days.

The broader market’s moves came after data in the US showed that annual producer inflation accelerated to 0.8 per cent in July from 0.2 per cent in the previous month. The reading was marginally above the 0.7 per cent forecast of economists polled by Reuters.

The dollar gained 0.3 per cent against a basket of six peer currencies following the data release, hitting its highest level in more than a month.

“The increase in wholesale prices serves as a reminder that the data-dependent Fed isn’t ready to declare victory on its campaign to quell inflation,” said Quincy Krosby, chief global strategist for LPL Financial, a US broker-dealer.

A day earlier, the latest US consumer price inflation report showed that prices rose at a slower-than-expected annual rate of 3.2 per cent in July, up from 3 per cent in the previous month.

Despite the uptick in the consumer price data, overall price pressures in the US have eased over the past year following an aggressive tightening campaign by the Federal Reserve, which took interest rates to their highest level in 22 years.

The overwhelming majority of investors expect the central bank to keep its benchmark federal funds rate steady at its next meeting in September, yet the policy decision could be swayed by upcoming economic data releases.

The yield on the policy-sensitive two-year US Treasury rose 0.07 percentage points to 4.89 per cent, while yields on the benchmark 10-year note added 0.09 percentage points to 4.17 per cent. Bond yields rise when prices fall.

Oil prices continued to shift north — rising for a sixth consecutive week — as global demand smashes records just as supply cuts by Saudi Arabia remove barrels from the market. 

The International Energy Agency said on Friday that worldwide consumption hit a record high of 103mn barrels a day in July — driven by strong summer air travel and surging Chinese demand.

The thirst for oil is straining an already tight market. Saudi Arabia said last week it would extend a 1mn barrel a day output cut designed to drive up prices into September.

Brent crude, the international benchmark, traded near a seven-month high of $87 a barrel and has risen about 10 per cent over the past month. Some analysts have predicted that prices will breach $100 a barrel before the year is out.

“There’s a sense . . . that the market is going to continue to tighten in the next few months,” said Daniel Yergin, vice-chair at S&P Global. “Oil above 80 means there will certainly be a lot more political focus on it in the US and around the world.”

Prices at the pump have also escalated, with petrol sitting at a nine-month high in the US of $3.84 a gallon, creating a political headache for president Joe Biden as his re-election campaign cranks into gear.