Hotter Than Expected Inflation Data May Trigger Sell-Off On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Wednesday, with stocks likely to come under pressure after ending yesterday’s choppy trading session narrowly mixed.

The futures plunged following the release of a closely watched Labor Department report showing consumer prices in the U.S. increased by more than expected in the month of January.

The Labor Department said its consumer price index advanced by 0.5 percent in January after climbing by 0.4 percent in December. Economists had expected consumer prices to rise by 0.3 percent.

The report also said the annual rate of consumer price growth accelerated to 3.0 percent in January from 2.9 percent in December, while economists had expected the pace of growth to remain unchanged.

The bigger than expected monthly increase by consumer prices partly reflected a continued surge by energy prices, which shot up by 1.1 percent in January after spiking by 2.4 percent in December.

Excluding the jump by energy prices as well as a 0.4 percent increase by food prices, core consumer prices rose by 0.4 percent in January after inching up by 0.2 percent in December. Core prices were expected to increase by 0.3 percent.

The annual rate of core consumer price growth also ticked up to 3.3 percent in January from 3.2 percent in December. Economists had expected the pace of growth to slow to 3.1 percent.

The hotter than expected inflation data is likely to increase speculation the Federal Reserve will leave interest rates on hold for a prolonged period.

Fed Chair Jerome Powell noted during his congressional testimony on Tuesday that the central bank can “maintain policy restraint for longer” if inflation does not continue to move sustainably toward 2 percent.

Following the rebound seen during Monday’s session, stocks fluctuated over the course of the trading day on Tuesday. The major averages swung back and forth across the unchanged line as the day progressed before eventually closing narrowly mixed.

While the Nasdaq fell 70.41 points or 0.4 percent to 19,643.86, the S&P 500 crept up 2.06 points or less than a tenth of a percent to 6,068.50 and the Dow rose 123.24 points or 0.3 percent to 44,593.65.

The choppy trading on Wall Street came as traders digested congressional testimony by Federal Reserve Chair Jerome Powell, who told the Senate Banking Committee the central bank does “not need to be in a hurry” to adjust its policy stance.

Powell noted interest rates have been lowered by a full percentage point since last September, describing the Fed’s current policy stance as “significantly less restrictive than it had been.”

“We know that reducing policy restraint too fast or too much could hinder progress on inflation,” Powell said. “At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”

Powell also suggested the Fed has options in determining the future path for rates depending on how the economy evolves.

“If the economy remains strong and inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer,” Powell said. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”

He continued, “We are attentive to the risks to both sides of our dual mandate, and policy is well positioned to deal with the risks and uncertainties that we face.”

Stocks moved to the downside in early trading amid lingering concerns about a global trade war after President Donald Trump officially announced tariffs on U.S. steel and aluminum imports.

A statement from the White House said Trump is reinstating a 25 percent tariff on steel imports and increasing tariffs on aluminum imports to 25 percent.

Networking and computer hardware stocks saw considerable weakness on the day, contributing to the decrease by the tech-heavy Nasdaq.

Significant weakness was also visible among airline stocks, as reflected by the 2.1 percent slump by the NYSE Arca Airline Index.

Gold and biotechnology stocks also showed notable moves to the downside, while oil producer stocks moved higher along with the price of crude oil.

Commodity, Currency Markets

Crude oil futures are sliding $0.83 to $72.49 a barrel after jumping $1 to $73.32 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,895.20, down $37.40 compared to the previous session’s close of $2,932.60. On Tuesday, gold edged down $1.80.

On the currency front, the U.S. dollar is trading at 154.29 yen compared to the 152.49 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0327 compared to yesterday’s $1.0361.

Asia

Asian stocks ended Wednesday’s session on a muted note as bond yields jumped after Federal Reserve Chair Jerome Powell’s comments on interest rates and economic stability.

Traders also waited for an announcement on higher reciprocal tariffs that U.S. President Donald Trump might unleash.

The U.S. dollar dipped ahead of a U.S. consumer price inflation reading due later in the day.

Gold dipped below $2,900 per ounce after hitting a new record high in the previous session amid heightened global uncertainty and potential trade war fears.

Crude oil futures eased in Asian trading after the American Petroleum Institute reported a huge jump in U.S. crude inventories.

China’s Shanghai Composite Index advance 0.9 percent to 3,346.39 after BYD said it would integrate self-driving features across 21 vehicles, using DeepSeek AI in some. BYD shares rallied 4.6 percent.

Hong Kong’s Hang Seng Index surged 2.6 percent to 21,857.92. Alibaba Group Holding soared 8.5 percent after reports that Apple is partnering with Alibaba to introduce artificial intelligence features for iPhone users in China.

Japanese markets eked out modest gains as the yen remained on track for its longest losing streak in more than a month amid heightened concerns Japan may be included in Trump’s tariff plan.

Traders also digested comments from Bank of Japan Governor Kazuo Ueda that the central bank will continue to conduct its monetary policy with the aim of achieving its 2 percent inflation target sustainably and stably.

The Nikkei 225 Index rose 0.4 percent to 38,963.70, while the broader Topix Index finished marginally higher at 2,733.33. Technology investor SoftBank Group surged 3.8 percent before announcing it swung to a $2.4 billion loss in its fiscal third quarter.

Seoul stocks hit a three-month high, with the Kospi rising 0.4 percent to 2,548.39 – its highest since November 8, 2024 – on speculation that U.S. tariffs under President Trump might largely overlook South Korea.

Shipbuilders Hyundai Heavy Industries and Hanwha Ocean both soared more than 15 percent, fueled by talks of a U.S. bill for naval ship production in allied countries.

Australian markets rose to a record close, led by financials. The benchmark S&P/ASX 200 Index climbed 0.6 percent to 8,535.30, while the broader All Ordinaries Index settled 0.6 percent higher at 8,799.60.

Commonwealth Bank of Australia gained 2.5 percent after delivering a strong half-year performance. Westpac rose 1.1 percent, ANZ added 0.7 percent and NAB surged 1.7 percent.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index ended marginally lower at 12,913.95.

Europe

European stocks have moved to the downside on Wednesday following the hotter than expected U.S. consumer price inflation data.

While the French CAC 40 Index is down by 0.5 percent, the German DAX Index and the U.K.’s FTSE 100 Index are both down by 0.2 percent.

Among individual stocks, TeamViewer SE has moved sharply higher as the German software developer reported higher profit in its fourth quarter with growth in revenues and subscribers.

Dutch lender ABN AMRO Bank has also shown a substantial move to the upside after its fourth quarter profits beat expectations.

Brewer Heineken NV has also soared after reporting better-than-expected earnings and launching a share buyback.

Barratt Redrow shares have also jumped. The British homebuilder has launched a £50 million share buyback and said it expects annual earnings towards the upper end of market view.

Banco BPM has also jumped. The Italian lender raised targeted profits and payouts for investors after posting strong 2024 results.

On the other hand, energy firm Siemens Energy has fallen after reporting a decrease in its first-quarter net profit for fiscal year 2025.

U.S. Economic News

Consumer prices in the U.S. increased by more than expected in the month of January, according to a report released by the Labor Department on Wednesday.

The Labor Department said its consumer price index advanced by 0.5 percent in January after climbing by 0.4 percent in December. Economists had expected consumer prices to rise by 0.3 percent.

The report also said the annual rate of consumer price growth accelerated to 3.0 percent in January from 2.9 percent in December, while economists had expected the pace of growth to remain unchanged.

The bigger than expected monthly increase by consumer prices partly reflected a continued surge by energy prices, which shot up by 1.1 percent in January after spiking by 2.4 percent in December.

Excluding the jump by energy prices as well as a 0.4 percent increase by food prices, core consumer prices rose by 0.4 percent in January after inching up by 0.2 percent in December. Core prices were expected to increase by 0.3 percent.

The annual rate of core consumer price growth also ticked up to 3.3 percent in January from 3.2 percent in December. Economists had expected the pace of growth to slow to 3.1 percent.

The monthly core consumer price growth reflected a 0.4 percent increase by shelter costs as well as higher prices for motor vehicle insurance, recreation, used cars and trucks, medical care, communication, and airline fares.

Meanwhile, the report said prices for apparel, personal care, and household furnishings and operations were among the few that decreased in January.

At 10 am ET, Federal Reserve Chair Jerome Powell is scheduled to deliver his semiannual monetary policy testimony before the House Financial Services Committee.

The Energy Information Administration is due to release its report on oil inventories in the week ended February 7th at 10:30 am ET.

Crude oil inventories are expected to increase by 2.8 million barrels after surging by 8.7 million barrels in the previous week.

At 12 pm ET, Atlanta Federal Reserve President Raphael Bostic is scheduled speak on the economic outlook in a moderated conversation before the Atlanta chapter of the National Association of Corporate Directors.

The Treasury Department is due to announce the results of this month’s auction of $42 billion worth of ten-year notes at 1 pm ET.

At 5:05 pm ET, Federal Reserve Board Governor Christopher Waller is scheduled to speak on “Stablecoins” before “A Very Stable Conference: Stablecoin Infrastructure for Real World Applications.”