Global Markets: European Investors Cautious, Asian Markets Decline, Wall Street Under Pressure from Rising Producer Prices

European markets traded cautiously on Friday morning as a larger-than-expected rise in producer prices in the U.S. raised questions about market estimates regarding when the Fed will begin to lower interest rates.

The STOXX 600 index of leading European stocks was almost unchanged at 9:30 AM compared to yesterday. Meanwhile, the London FTSE index strengthened by 0.01 percent to 7,743 points, while the Frankfurt DAX rose by 0.02 percent to 17,940 points, and the Paris CAC increased by 0.05 percent to 8,165 points.

In Asian markets, stock prices fell. The MSCI Asia-Pacific index, excluding Japan, was down 0.7 percent at 9:30 AM. The Nikkei index on the Tokyo Stock Exchange weakened by 0.3 percent, while stock prices in Australia, South Korea, and Hong Kong fell between 0.6 and 1.9 percent. In Shanghai, however, prices rose by about 0.5 percent.

Investors were discouraged by yesterday’s decline on Wall Street. The Dow Jones index fell by 0.35 percent, while the S&P index slid by 0.29 percent, and the Nasdaq index dropped by 0.30 percent, after new data showed that producer prices in the U.S. rose by 0.6 percent in February, double what was expected.

This prompted correction in stock prices in the utilities and real estate sectors, which are sensitive to changes in interest rates. The stock price of tech star Nvidia fell by 3.2 percent, dragging the entire sector down by an average of 1.8 percent. Since the beginning of the week, the semiconductor sector has fallen by 3.5 percent as investors decided to take some profits off the market after a recent strong surge in their prices.

Next week, investors will focus on the Fed meeting. The central bank is expected to keep interest rates unchanged, and as inflation has remained elevated over the past two months, the chances of the Fed lowering rates in June are diminishing. Before the release of the producer price report, the money market estimated a 67 percent chance that the Fed would lower rates in June, but that probability has now fallen to 60 percent.

– Looking at overall inflation, it has remained elevated over the past two months, yet the market has somehow grown. The Fed may not ease monetary policy this year as much as the market wanted, but the prospects for further tightening remain very low – says Tony Welch, director at SignatureFD.

In the currency markets, the value of the dollar against a basket of currencies has significantly increased, following yesterday’s producer price report. The dollar index, which shows the value of the U.S. dollar against the other six major world currencies, is around 103.45 points, while it was 102.77 points at the same time yesterday.

Meanwhile, the exchange rate of the dollar against the Japanese currency rose from yesterday’s 147.70 to 148.50 yen. The American currency also strengthened against the European one, with the euro price sliding to 1.0880 dollars, down from 1.0950 dollars at the same time yesterday. Oil prices, on the other hand, are stagnating after yesterday’s strong rise. The price of a barrel on the London market weakened by 0.18 percent to 85.25 dollars, while on the American market, a barrel decreased by 0.16 percent to 81.15 dollars.