Stocks were sold off on Friday after a jump in inflation raised concerns about how much freedom the Federal Reserve has to continue cutting interest rates. The Dow Jones Industrial Average lost more than 178 points.
The Labor Department said the consumer price index rose 0.8 percent last month amid a spike in gasoline prices. The report also found large increases in the cost of clothing, airline tickets and prescription drugs.
The report raises questions about the Fed's options for priming the economy. The Fed this week lowered interest rates and announced a plan to align with other key central banks and offer loans to pressed lenders around the world. But while it wants to stimulate the US economy and make lending easier among banks wary of faltering debt, the Fed also has to keep a watchful eye on inflation.
Robert Dye, senior economist at PNC Financial Services Group, said the economic readings this week painted a mixed picture for investors, spurring some of the market's volatility.
"If you take the stronger-than-expected economic data we saw this week in the form of retail sales and add to that the inflation data and then combine that with a somewhat ambiguous statement from the Fed, you get a picture as clear as mud," he said.
The uncertainty weighed on the markets on Friday, a day after stocks finished mixed. The Dow Jones industrial average fell 178.11, or 1.32 percent, to 13,339.85.
Broader stock indicators also fell. The Standard & Poor's 500 index dropped 20.46, or 1.37 percent, to 1,467.95, and the NASDAQ composite index fell 32.75, or 1.23 percent, to 2,635.74.
Bond prices fell for the third straight day. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.23 percent from 4.21 percent late on Thursday.
Friday's report on inflation follows a reading on Thursday that showed the biggest jump in inflation at the wholesale level in 34 years.
The 0.8 percent increase in consumer prices topped the 0.6 percent rise economists had been expecting. The report also showed so-called core inflation, which excludes often-volatile food and energy prices, had its biggest increase in 10 months, rising 0.3 percent.
Dye said the Fed could be proven wise for cutting interest rates by just a quarter of a percentage point on Tuesday rather than by a half point as some investors had hoped. Stocks fell sharply on Tuesday after the Fed's rate decision and staged a partial rebound on Wednesday after the Fed announced its liquidity plan with other central banks.
The uptick in core inflation is unnerving, Dye said, because it makes it harder for the Fed to justify further rate cuts.
Also on Friday, the Federal Reserve said industrial production rebounded last month, increasing 0.3 percent after a steep 0.7 percent decline in October.
But beyond economic reports, investors faced more news from the troubled banking sector.
Citigroup Inc fell 31 cents to US$30.70 after the bank announced late on Thursday it plans to move assets from seven "structured investment vehicles" onto its books and put up US$49 billion to help the SIVs repay their debts.
The bank had said earlier it had no plans to bring the SIVs onto its books. Citigroup's Vikram Pandit, who on Tuesday became chief executive, said taking control of the SIVs was the best way to guard their credit ratings and help them sell their investments at decent prices.
SIVs are complex investments set up by banks and sold to investors and have come under pressure in recent months because of their investment strategy, which involves the use of mortgage investments and other now-risky debt. The resulting drop in demand hurt the value of the SIVs.
Declining issues outnumbered advancers by more than two to one on the New York Stock Exchange, where volume came to 1.12 billion shares.
The Russell 2000 index of smaller companies fell 15.53, or 2.02 percent, to 753.93.
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
RSS