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Wall Street stocks fall on latest sign of persistent inflation

US stocks fell on Thursday after recent evidence of persistent inflationary pressures in the world’s largest economy stoked concerns that the Federal Reserve is keeping interest rates high in a bid to curb inflation.

The blue-chip S&P 500 shed 0.4 percent in afternoon trading in New York, while the tech-heavy Nasdaq Composite slipped 0.5 percent, with both trimming losses after sharper declines at the open.

The moves in equity markets came after the US producer price index, which tracks wholesale prices, rose at a 6 percent annual rate in January, up from 6.2 percent in December but well above the consensus estimate of 5.4 percent.

Investors have been alert for signs of persistent inflation and a still-hot US economy, with the latest data already pushing up the level at which interest rates are expected to peak and reducing the number of Fed rate cuts, which the markets are pricing in for later in the year.

“Strong producer prices early in the year in January underscore that there remain strong underlying inflationary pressures, particularly from a still tight labor market and very strong wage growth in recent years,” analysts at Citi said.

Thursday’s declines followed modest gains in the previous session as investors triggered stronger-than-expected retail sales, which were expected to boost corporate earnings.

“The difference today is that the narrative has turned to inflation,” said John Roe, head of multi-asset funds at Legal and General Investment Management. “Positive growth implies a soft landing, while stubborn inflation suggests a no-landing and the risk of tighter monetary policy.”

The dollar index, which measures the greenback against a basket of peer currencies, fell 0.1 percent. In government bond markets, the policy-sensitive 2-year government bond yield was broadly unchanged at 4.62%, while the benchmark 10-year government bond yield rose 0.04 percentage point to 3.85%.

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Europe’s benchmark stock index Stoxx 600 and the German Dax each closed 0.2 percent higher. France’s CAC 40 was a standout performer, rising 0.9 percent to a record high for the day.

Line chart showing that the French CAC 40 index hits an all-time high

The British FTSE 100 rose by 0.2 percent and closed above 8,000 points for the first time.

Some economists fear that signs of economic strength will embolden major central banks to raise interest rates further in a bid to quell persistent inflation. Speaking to EU lawmakers on Wednesday, European Central Bank President Christine Lagarde stressed the need for further rate hikes.

Brent crude, the international benchmark, gave up earlier gains to trade 0.3 percent lower at $85.06 a barrel and WTI, the US benchmark, fell 0.2 percent to $78.43 a barrel.

Hong Kong’s Hang Seng Index rose 0.8 percent, while China’s CSI 300 lost 0.7 percent.

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