Inflation, Interest Rate Concerns Contribute To Pullback On Wall Street

After an initial sell-off, stocks have regained some ground over the course of morning trading on Thursday but remain mostly lower. The major averages have all pulled back after turning higher over the course of the previous session.

Currently, the major averages are well off their worst levels but still firmly negative. The Dow is down 241.74 points or 0.7 percent at 33,886.31, the Nasdaq is down 75.43 points or 0.6 percent at 11,995.16 and the S&P 500 is down 26.77 points or 0.7 percent at 4,120.83.

Stocks moved sharply lower in early trading following the release of a report showing a bigger than expected increase in producer prices.

The Labor Department said its producer price index for final demand climbed by 0.7 percent in January after edging down by a revised 0.2 percent in December.

Economists had expected producer prices to increase by 0.4 percent compared to the 0.5 percent drop originally reported for the previous month.

While the report also showed the annual rate of producer price growth slowed to 6.0 percent in January from 6.5 percent in December, the year-over-year growth was expected to slow to 5.4 percent.

Following the consumer price inflation and retail sales data released earlier this week, the report added to worries about the outlook for interest rates.

Traders have recently expressed concerns the Federal Reserve will raise rates higher than currently anticipated in an effort to combat inflation.

“The larger than expected increase to producer prices is unwelcome news to the Fed and reinforce the view that further policy tightening is needed to tame inflation,” said Matthew Martin, U.S. Economist at Oxford Economics.

A separate Labor Department report showed first-time claims for U.S. unemployment benefits unexpectedly edged slightly lower in the week ended February 11th.

The report said initial jobless claims slipped to 194,000, a decrease of 1,000 from the previous week’s revised level of 195,000.

Economists had expected jobless claims to inch up to 200,000 from the 196,000 originally reported for the previous week.

Michael Pearce, Lead US Economist at Oxford Economics, said the current level of jobless claims suggests labor market conditions remain “exceptionally tight.”

“That is consistent with most other indicators which suggest that the labor market is still carrying plenty of momentum, leaving the Fed on track to raise rates at its March meeting, and probably at the May meeting too,” Pearce added.

Telecom stocks are seeing significant weakness on the day, with the NYSE Arca North American Telecom Index falling by 1.6 percent.

Considerable weakness is also visible among housing stocks, as reflected by the 1.6 percent drop by the Philadelphia Housing Sector Index.

The weakness in the housing sector comes after the Commerce Department released a report showing housing starts plunged to their lowest level in well over two years in January.

Utilities, airline and software stocks are also seeing notable weakness in morning trading, moving lower along with most of the other major sectors.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan’s Nikkei 225 Index climbed by 0.7 percent, while Hong Kong’s Hang Seng Index advanced by 0.8 percent.

The major European markets have also moved to the upside on the day. While the French CAC 40 Index is up by 0.8 percent, the German DAX Index is up by 0.2 percent and the U.K.’s FTSE 100 Index is up by 0.1 percent.

In the bond market, treasuries are extending a recent downward trend following the inflation data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is up 3.1 basis points at 3.840 percent.

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