Inflation Worries Hammer Stocks…..

U.S. equities finished solidly lower, as a much hotter-than-expected April Consumer Price Index upped the anxiety over inflation concerns. The rise in inflation expectations has brought into question the timing of when the Fed will begin to taper its asset purchases to weigh on conviction as the Dow and S&P 500 have pulled back from recent record high territory, and the Nasdaq continues to underperform. Treasuries came under pressure, lifting bond yields, and the U.S. dollar was noticeably higher, bouncing off of a recent pullback on the heels of the inflation data, while gold as lower and crude oil prices rose. In light earnings news, Electronic Arts’ shares suffered after fiscal Q4 EPS fell short of estimates, while Intuit was higher after upping its guidance. Overseas, Europe finished with modest gains amid mixed data in the region, while markets in Asia were mixed.

The Dow Jones Industrial Average fell 682 points (2.0%) to 33,588, the S&P 500 Index decreased 89 points (2.1%) to 4,063, and the Nasdaq Composite tumbled 358 points (2.7%) to 13,032. In heavy volume, 1.0 billion shares were traded on the NYSE and 4.7 billion shares changed hands on the Nasdaq. WTI crude oil moved $0.80 higher to $66.08 per barrel. Elsewhere, the Bloomberg gold spot price lost $16.89 to $1,820.58 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.7% at 90.75.

Consumer price inflation comes in hotter than expected, mortgage applications rise…..

The Consumer Price Index (CPI) rose 0.8% month-over-month (m/m) in April, above the Bloomberg consensus estimate of a 0.2% gain, and compared to March’s unrevised 0.6% increase. The core rate, which strips out food and energy, increased 0.9% m/m, north of expectations to match March’s unadjusted 0.3% increase. Y/Y, prices were 4.2% higher for the headline rate, exceeding forecasts projecting a 3.6% increase and north of March’s unadjusted 2.6% rise. The core rate was up 3.0% y/y, north of projections of a 2.3% rise and March’s unrevised 1.6% increase.

The report showed that prices for used cars and trucks rose 10.0% m/m, posting the largest one-month increase since the series began in 1953, and accounting for over a third of the seasonally adjusted all items increase. Food prices increased in April as prices for food at home and food away both increased, while energy prices decreased slightly. Core consumer prices registered the largest monthly increase since April 1982, with nearly all major components rising.

The MBA Mortgage Application Index increased by 2.1% last week, following the prior week’s 0.9% decrease. The rise came as the Refinance Index gained 2.9% and the Purchase Index was 0.8% higher. The average 30-year mortgage rate fell 7 basis points (bps) to 3.11%.

Treasuries were lower following the inflation data, as the yield on the 2-year note was flat at 0.16%, while the yields on the 10-year note and the 30-year bond rose 8 bps to 1.70% and 2.41%, respectively.

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