Volkswacht Bodensee - Hot US inflation data hammers Wall Street stocks

The annual consumer price index (CPI) came in at 3.5 percent in March, up 0.3 percentage points from February, the Labor Department said. A widely-watched "core" inflation measure excluding volatile food and energy prices rose at an annual rate of 3.8 percent.

The month-on-month gains of 0.4 percent for headline and core inflation also came in higher than expected by economists.

"US CPI came in hotter than expected at +0.4 percent month-on-month, sending traders to exit bets on a June rate cut and dump stocks," said Neil Wilson, chief market analyst at Finalto.

The blue-chip Dow fell 1.2 percent in late morning trading, while the broader S&P 500 and the tech-heavy Nasdaq Composite were down around 1.0 percent.

The yields on US government debt jumped as did the dollar, including sending the yen to a new 34-year-low of more than 152 to the greenback.

"The immediate aftermath of the CPI report has been a bloodbath," said Kathleen Brooks, research director at XTB online brokerage.

European equities, which turned negative after the US inflation data, rallied to end the day with modest gains in most markets.

At the start of this year investors had expected the Fed could make six rate cuts of 0.25 percentage points this year. Those expectations have steadily dropped.

"The market has once again recalibrated US rate cut expectations, and the verdict is that that first rate cut may not come until November," said Brooks.

"The market is now pricing in less than 2 rate cuts from the Fed for this year."

Brooks noted that Fed chair Jerome Powell called the recent higher than expected inflation rates "bumps along the road".

"After March’s higher than expected inflation reading, this looks less like a bump in the road, and more of a pathway towards higher for longer inflation, and higher for longer interest rates," she said.

Some observers have suggested that no rate cuts could be the price to pay for economic health and strong earnings. The US corporate earnings season begins later this week.

The European Central Bank, buoyed by slowing inflation, is expected to keep eurozone borrowing costs on hold one last time Thursday while laying the ground for a first interest rate cut in June.

Asian traders on Wednesday shrugged off a decision by Fitch to downgrade China's sovereign credit outlook to negative based on increased risks to the country's public finances.

Hong Kong surged 1.9 percent, boosted by a rally in tech firms including Tencent after Chinese authorities approved a number of overseas online games.

- Key figures around 1530 GMT -

New York - Dow: DOWN 1.2 percent at 38,430.41 points

New York - S&P 500: DOWN 1.0 percent at 5,158.09

New York - Nasdaq Composite: DOWN 1.0 percent at 16,143.13

London - FTSE 100: UP 0.3 percent at 7,961.21 (close)

Paris - CAC 40: DOWN less than 0.1 percent at 8,045.38 (close)

Frankfurt - DAX: UP 0.1 percent at 18,097.30 (close)

EURO STOXX 50: UP 0.2 percent at 5,000.83 (close)

Tokyo - Nikkei 225: DOWN 0.5 percent at 39,581.81 (close)

Hong Kong - Hang Seng Index: UP 1.9 percent at 17,139.17 (close)

Shanghai - Composite: DOWN 0.7 percent at 3,027.33 (close)

Dollar/yen: UP at 152. yen from 151.76 yen on Tuesday

Euro/dollar: DOWN at $1.0 from $1.0860

Pound/dollar: DOWN at $1.25 from $1.2678

Euro/pound: DOWN at 85. pence from 85.64 pence

Brent North Sea Crude: FLAT at $89.41 per barrel

West Texas Intermediate: DOWN less than 0.1 percent at $85.18 per barrel

burs-rl/cw

S.Spengler--VB