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While you were sleeping: Tillerson out, US inflation muted

Wednesday 14th March 2018

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Wall Street gave up earlier gains as investors assessed the impact of tame US inflation data on the outlook for interest rates and US President Donald Trump’s sudden firing of Secretary of State Rex Tillerson on the administration's moves towards protectionism.

Trump said he would nominate CIA Director Mike Pompeo as secretary of state. 

“We’ve got a new person filling the shoes of the Secretary of State,” Mike Bailey, director of research at FBB Capital Partners in Bethesda, Maryland, told Bloomberg. “Although the new person has been around in a different office previously, investors may just be concerned about what is this new person going to do? Could the new secretary of state be more in line with Trump? Be more inclined towards protectionism?”

Wall Street was mixed. In 1.36pm trading in New York, the Dow Jones Industrial Average rose 0.1 percent. However, the Nasdaq Composite Index fell 0.3 percent. In 1.21pm trading, the Standard & Poor’s 500 Index inched 0.04 percent lower.

A Labour Department report showed the US consumer price index increased 0.2 percent in February, following a 0.5 percent gain the previous month. Core CPI, which excludes the volatile food and energy components, rose 0.2 percent last month, after a 0.3 percent advance in January.

"Treasury yields edged fractionally lower on Tuesday immediately after the release of US CPI inflation data for February,” Capital Economics economist Oliver Jones said in a note. “But we think that the strength of price pressures will help to push them up over the rest of this year.”

"We still think that core inflation in particular will rise significantly before long," according to Jones. "Survey evidence and the past tightening of the labour market point to wage inflation accelerating before long, pushing up unit labour costs." 

US Treasuries rose, pushing the yield on the 10-year note two basis points lower to 2.85 percent. Next Tuesday, the Federal Open Market Committee is set to start its two-day policy meeting at which it is widely expected to raise interest rates. 

“It certainly presents some more difficult questions for the central bank if they look to embark on a more aggressive rate hiking cycle next week,” Aaron Kohli, interest rate strategist, BMO Capital Markets in New York, told Reuters. “How do they expect to get inflation materially higher if they are already starting to see some signs of spotty weakness?”

The Dow moved higher as gains in shares of Johnson & Johnson and those of UnitedHealth Group, recently each up 2 percent, outweighed slides in shares of General Electric and those of Microsoft, down 4.7 percent and 1.9 percent respectively recently.

In Europe, the Stoxx 600 Index finished the day with a1 percent decline from the previous close.  Germany’s DAX Index dropped 1.6 percent, the UK’s FTSE 100 index retreated 1.1 percent, and France’s CAC40 Index slid 0.6 percent.


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