Wall Street equity indexes fell and Treasury yields rose after data showed U.S. producer prices rebounded in January by more than expected, underscoring persistent inflationary pressures that could push the Federal Reserve to pursue further interest-rate increases.

The producer price index for final demand jumped 0.7 per cent last month, the most since June, and was up 6 per cent from a year earlier, bolstered by higher energy costs. After the data release, Federal Reserve Bank of Cleveland President Loretta Mester said in prepared remarks that she saw a “compelling economic case” for rolling out another 50 basis-point hike earlier this month. 

Wednesday’s stock rallies were erased as S&P 500 Index and Nasdaq 100 each fell 0.5 per cent. Yield on the benchmark 10-year Treasury at one point rose to nearly 3.87 per cent, the highest level this year. 

The data picture was mixed. New U.S. home construction retreated for a fifth month in January as elevated mortgage rates continue to keep a lid on housing demand, but weekly jobless claims fell to 194,000, below expectations of 200,000.

“Overall, layoffs remain low, suggesting companies remain reluctant to reduce their workforce for now,” wrote Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “A rapid rise in interest rates has yet to impact the labor market. But an adjustment is likely over coming months as the cumulative and lagged effects of restrictive monetary policy spread more broadly through the economy.”

Thursday’s economic prints added further details for Fed policymakers plotting the path for rate hikes, after Wednesday’s U.S. retail sales in January jumped by the most in almost two years.

“This data was just a reminder that the battle against inflation is not easy,” Peter Boockvar, chief investment officer at Bleakley Financial Group, wrote. “Cost pressures basically got into every single nook and cranny of the economy over the past few years and it doesn’t just magically disappear, especially as many companies are still trying to recover lost profit margins.”

Investors have been upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing to 5.23 per cent in July, according to trading in the US money markets. That compares with a perceived peak rate of 4.9 per cent just two weeks ago, and the central bank’s current 4.5 per cent to 4.75 per cent target range. 

 “You will not sustainably get to 2 per cent inflation when you have a labor market that is this tight,” Steve Chiavarone, senior portfolio manager and head of multi-asset solutions at Federated Hermes, said by phone. “It is so completely out of whack.” 

The Dow Jones Industrial Average fell 0.6 per cent Thursday. So far this year the 30-member blue-chip gauge is up just 2 per cent, compared with a 7 per cent gain in the S&P 500. The 5 percentage-point gap between the two makes the Dow’s start to a year the weakest relative to the S&P 500 since 1934, data compiled by Bloomberg show.

Bitcoin optimism continued as the cryptocurrency topped US$25,000 for the first time since August as traders’ fears of a U.S. regulatory crackdown abated. 

Oil fluctuated as investors assessed more evidence of higher energy demand in China and a large build in U.S. crude stockpiles. Gold was steady.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.5 per cent, more than any closing loss since Feb. 9 as of 11:48 a.m. New York time
• The Nasdaq 100 fell 0.5 per cent, more than any closing loss since Feb. 10
• The Dow Jones Industrial Average fell 0.6 per cent, more than any closing loss since Feb. 9
• The Stoxx Europe 600 rose 0.2 per cent to the highest in a year
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was unchanged at $1.0689
• The British pound was little changed at $1.2024
• The Japanese yen surged 0.2 per cent, more than any closing gain since Feb. 7

Cryptocurrencies

• Bitcoin rose 3.1 per cent to the highest in about eight months
• Ether rose 3.3 per cent to the highest since Sept. 12

Bonds

• The yield on 10-year Treasuries advanced one basis point to 3.82 per cent
• Germany’s 10-year yield was little changed at 2.47 per cent
• Britain’s 10-year yield was little changed at 3.49 per cent

Commodities

• West Texas Intermediate crude rose 0.3 per cent to $78.86 a barrel
• Gold futures were little changed