U.S. stocks were mostly flat on Friday as traders took higher-than-expected producer prices, a further sign that the central bank will keep interest rates higher for longer to rein in rising inflation.
The benchmark S&P 500 fell 0.1% and the tech-heavy Nasdaq held steady in afternoon trade in New York after the latest U.S. producer price index rose 0.3% month-on-month in November, more than the 0.2% predicted by economists.
Economists said the stronger-than-expected reading would not deter the Federal Reserve from raising rates next week as the fight against inflation is far from over. However, Fed Chairman Jay Powell late last month laid the groundwork for the U.S. central bank to slow the pace of rate hikes from its policy meeting next Wednesday.
“An increase of 0.5 percentage point [from the Fed] seems pretty nailed at this point,” said Neil Shearing, chief economist at Capital Economics. High inflation rates forced the central bank to implement four 0.75 percentage point hikes, bringing its key policy rate between 3.75% and 4%.
Investors are now turning their attention to Tuesday’s consumer price index data, which coincides with the kickoff of the Fed’s two-day policy meeting.
US government debt sold off on Friday, with the 10-year yield gaining 0.07 percentage points to 3.56% and the 2-year Treasury yield up 0.01 percentage points to 4.32%.
Government bonds generally fall as borrowing costs rise, as higher interest rates eat away at real yields on fixed income securities. In late October, the yield on US 10-year government debt hit 4.24%, its highest level since the 2008 financial crisis, but has since fallen as inflationary pressures eased.
“While most are worried about how far the Fed will go to rein in inflation, the bond market has already moved on,” said Jim Paulsen, chief investment strategist at Leuthold Group.
In Europe, the Stoxx 600 rose 0.8% and the German Dax closed up 0.7%.
Asian stocks, meanwhile, climbed as relaxations of China’s zero Covid policy boosted investor hopes that the world’s second-largest economy would reopen early next year.
Hong Kong’s Hang Seng index rose 2.3% and rose more than a fifth in the past month.
The Hang Seng Mainland Properties Index, which tracks some of China’s biggest developers, rose 9.9% during the session, buoyed by recent moves by Beijing to end a ban on equity refinancing and provide $162 billion in loans through state banks. Country Garden, the nation’s largest real estate company by sales, added 8.5%.
Chinese property developers have endured a difficult year and HSMP remains on track for its worst year in a decade despite rising 33% this quarter.
Mainland Chinese stocks also rose, with the CSI 300 index of stocks listed in Shanghai and Shenzhen gaining 1%.
The moves come as Beijing prioritizes economic growth over suppressing the virus for the first time since the coronavirus pandemic began. Analysts, however, warn that infections are likely to rise as a result, delaying a rapid reopening of the economy.
“Activity is likely to remain depressed until the second half of 2023, with the wave of reopening infections keeping many people at home,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
