Inflation concerns pull rug out from Wall Street rally

Donald Trump items on display as traders and financial professionals work on the floor of the New York Stock Exchange during the first session of the new year on January 2. Photo / Timothy A. Clary, AFP

US survey data rekindled inflation concerns and rising bond yields helped pull the rug out from under a rally on Wall Street on Tuesday.

“A much stronger-than-expected rise in US services prices sent shivers through US stocks,” said market analyst Axel Rudolph at online trading platform IG.

ISM’s monthly survey of the US services sector showed it expanded in December, but the prices component also jumped to its highest point since last January.

There have been mounting concerns that incoming president Donald Trump’s plans to raise tariffs, cut taxes and crack down on immigration will reignite US inflation, putting pressure on the Fed to keep borrowing costs higher for longer.

“There are still fears that Trump’s tariff plan will be inflationary for economies around the world, as it could lead to further upwards pressure on the dollar, if interest rates are forced to stay elevated in the US, due to higher consumer prices,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown brokerage in London.

“This is having an impact on the bond markets and has led to a sell-off around the world,” she told AFP.

Yields on US government debt jumped higher and the yield on 30-year UK Treasury Gilts hit its highest level since 1998.

Friday’s US non-farm payroll report is the next big marker for investors hoping for some idea about the Fed’s plans for rates after it recently scaled back its forecasts for cuts in 2025.

Elsewhere, the euro strengthened against the dollar as official data showed eurozone inflation accelerated in December to 2.4%.

Higher eurozone inflation will make it more difficult for the European Central Bank to cut interest rates in order to boost sluggish growth.

However the euro later fell back after the US services data as the dollar rose against its major rivals.

European stock markets closed mostly higher, as did Asian stocks, which still benefited from speculation that Trump’s tariff plans to slap tariffs on all imports may be scaled back.

The Washington Post said on Monday that Trump’s aides were weighing plans to apply tariffs to goods only in certain critical sectors, a narrower definition than the president-elect previously proposed.

Trump, however, described the Post story as “just another example of Fake News”.

The report comes after Trump warned last year he would slap huge levies on China, Canada and Mexico.

Ahead of Trump taking office on January 20, the US Defense Department on Tuesday added tech giant Tencent and battery manufacturer CATL to a list of companies it says are affiliated with Beijing’s military.

China accused Washington of “unjustified suppression”, while Tencent’s shares plummeted more than 7% in Hong Kong.

CATL stock sank 5.2%.

Key figures around 5.30am, NZ time:

New York - Dow: UP less than 0.1% at 42,739.52 points

New York - S&P 500: DOWN 0.4% at 5,952.38

New York - Nasdaq Composite: DOWN 1.0% at 19,667.62

Paris - CAC 40: UP 0.6% at 7,489.35 (close)

Frankfurt - DAX: UP 0.6% at 20,340.57 (close)

London - FTSE 100: DOWN less than 0.5% at 2,245.28 (close)

Tokyo - Nikkei 225: UP 2.0% at 40,083.30 (close)

Hong Kong - Hang Seng Index: DOWN 1.2% at 19,447.58 (close)

Shanghai - Composite: UP 0.7% at 3,229.64 (close)

Euro/dollar: DOWN at $1.0366 from $1.0388 on Monday

Pound/dollar: DOWN at $1.2490 from $1.2518

Dollar/yen: UP at 158.00 yen from 157.64 yen

Euro/pound: UP at 83.02 pence from 82.98 pence

Brent North Sea Crude: UP 1.1% at $77.12 per barrel

West Texas Intermediate: UP 1.1% at $74.36 per barrel

© Agence France-Presse