US inflation rises as expected in February, impacting market sentiment
Oil prices up as Middle East conflict raises concerns over global energy trade and inflation
Bond yield rise fuels overheating fears in private credit and AI investments
Updates to afternoon U.S. trading
By Lawrence Delevingne and Amanda Cooper
BOSTON/LONDON, March 11 (Reuters) - Wall Street shares fell but the dollar held firm on Wednesday, after data showed U.S. inflation picked up as expected in February, although most investor focus was squarely on the oil price and on the chances that the U.S.-Israeli war on Iran could have a longer-term impact on economic growth.
Data from the Labor Department showed the consumer price index rose 0.3% in February, in line with forecasts and above January's 0.2% increase. CPI rose 2.4% in the year to February, also matching expectations, while the core rate, which excludes food and energy prices, rose 2.5%, in line with forecasts.
On Wall Street, the Dow Jones Industrial Average .DJI fell about 0.6%, the S&P 500 .SPX dropped 0.1%, and the Nasdaq Composite .IXIC was little changed.
The consumer price report does not capture the steep rise in items such as gasoline since the outbreak of war in the Middle East 12 days ago. Markets already show traders believe there is a rising chance that most central banks' next move with interest rates will be to hike.
"February’s inflation numbers were heading in the right direction, but then along came the conflict in the Middle East and now the path is changing. Instead of deflation from energy, we will get inflation. Food prices could show signs of inflation acceleration as the fertilizer market is in chaos," Annex Wealth Management chief economist Brian Jacobsen said.
Oil had another volatile day, although price movement was muted compared to the record price swings of Monday's session.
The International Energy Agency will recommend the release of 400 million barrels of oil, the largest amount in IEA history, three sources said on Wednesday, to rein in soaring prices. Japan and Germany said they would start releasing some reserves.
Brent crude futures LCOc1 were last up around 4% at $91 a barrel, having risen earlier by as much as 6% to almost $93.
The MSCI All-World index .MIWD00000PUS fell 0.2% and European shares slid, leaving the STOXX 600 .STOXX down 0.6%. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed higher by 1%.
Investors remain on edge as the Middle East conflict threatens to freeze global energy trade and ignite a price shock - a risk that world leaders are scrambling to address.
The immediate concern is when the Strait of Hormuz, a critical artery for 20% of global fuel supply, will again be safe for traffic as threats to vessels have deterred ships from entering it since the outbreak of the U.S.-Israeli war on Iran. Three more vessels were struck by projectiles, while Iran's military command said on Wednesday that the world should be prepared for oil to hit $200 a barrel.
European Central Bank President Christine Lagarde said on Tuesday the ECB would do everything to keep inflation under control to avoid a repeat of the 2022 energy price shock. Several ECB officials favor a wait-and-see approach before taking action.
The euro EUR= fell around 0.3% to $1.157, while the pound GBP= was little changed on the day at $1.341. The yen JPY= weakened further, leaving the dollar up 0.5% at 158.9.
BOND YIELD SURGE ADDS TO OVERHEATING CONCERNS
The surge in bond yields this week, due to fears of sustained energy-price pressures, has added to concerns over other market segments being at risk of overheating, such as private credit and the vast investments in AI projects.
Investors were also reminded of vulnerabilities within private credit after a person close to JPMorgan Chase <JPM.N> said on Wednesday the bank had marked down the value of some loans held by private-credit groups and was tightening lending to the sector. Publicly-traded asset managers such as Blue Owl Capital <OWL.N> and Ares Management <ARES.N> lost ground on Wednesday as jitters were felt across the financials sector.
U.S. Treasuries fell again on Wednesday, pushing the yield on the benchmark 10-year note US10YT=RR up 8.2 basis points to 4.218%.
(Reporting by Lawrence Delevingne in Boston and Amanda Cooper in London. Additional reporting by Rae Wee in Singapore; Editing by Pooja Desai, Bernadette Baum, William Maclean, Nick Zieminski and Aurora Ellis)
((lawrence.delevingne@tr.com))