Global Markets Waver as Inflation Data Challenges Fed Rate Cut Expectations

Global markets saw a pullback on Thursday as stocks retreated from previous highs and U.S. Treasury yields climbed following stronger-than-expected inflation data. The uptick in U.S. producer prices, reported at 0.9% for July, outpaced the consensus forecast of a mere 0.2% gain, shaking investor expectations for a Federal Reserve interest rate cut.

Wall Street felt the pressure as major indices, including the S&P 500 and Nasdaq, retracted from their recent peaks, with materials, real estate, and industrial stocks notably affected. However, communication services and healthcare stocks fared better, counterbalancing some of the losses. In contrast, European stocks managed to hold gains from earlier in the session.

Despite the turbulence, market focus remains on how the Federal Reserve will respond to the inflation data amidst ongoing trade tensions. As treasury yields spiked, with the two-year note yield rising to 3.741%, the majority of traders still suspect a 25 basis point rate cut is likely, though some have reduced their bets. Meanwhile, the dollar strengthened, particularly against the yen and the euro.

(With inputs from agencies.)