U.S. Treasury yields and the dollar climbed on Thursday, while a gauge of global stocks stumbled after a stronger than expected reading on U.S. inflation cast doubt on the timing and magnitude of interest rate cuts from the Federal Reserve this year.
The producer price index (PPI) for final demand rose 0.6% last month, above the 0.3% climb forecast by economists polled by Reuters, after advancing by an unrevised 0.3% in January, the Labor Department said.
A reading on consumer inflation earlier this week also showed some stickiness in inflation.
Other data showed U.S. retail sales rebounded last month with a 0.6% rise, but were below the 0.8% estimate, while weekly initial jobless claims fell to 209,000 versus the 218,000 forecast.
"Fed confusion - where we started with 'Oh my God, they're going to cut six times or eight times this year,' now it's 'They're definitely going to cut three times this year,'" said JJ Kinahan, CEO of IG North America and president of Tastytrade in Chicago.
"What people are seeing in the inflation numbers, what it looks like is starting to maybe turn a little bit on job numbers, there's just all this conflicting data so what the easiest thing to do is to not do a lot."
The Dow Jones Industrial Average fell 137.66 points, or 0.35%, to 38,905.66, the S&P 500 lost 14.83 points, or 0.29%, to 5,150.48 and the Nasdaq Composite shed 49.24 points, or 0.30%, to 16,128.53.
Ahead of a Fed policy meeting next week where a rate cut has been essentially ruled out, the market has trimmed the odds of a cut at the June meeting, with expectations for a cut of at least 25 basis points at 59.9%, according to CME's FedWatch Tool, down from 81.7% a week ago.
The yield on benchmark U.S. 10-year notes jumped 9.8 basis points to 4.29%, from 4.192% while the 2-year note yield, which typically moves in step with interest rate expectations, rose 6.9 basis points to 4.6914%.
The 10-year yield was poised for its biggest one-day increase since Feb. 13.
MSCI's gauge of stocks across the globe fell 2.75 points, or 0.35%, to 772.53, while the STOXX 600 index closed down 0.18% after hitting a third straight intraday record high. Europe's broad FTSEurofirst 300 index shed 3.37 points, or 0.17%.
The Bank of Japan also meets next week. Officials including Governor Kazuo Ueda have sought to temper expectations of an imminent shift out of negative interest rates, which has set the yen on course for its worst weekly performance in a month.
The dollar index gained 0.53% at 103.29, with the euro down 0.5% at $1.0891.
Against the Japanese yen , the dollar strengthened 0.32% at 148.22. The Japanese currency had briefly firmed against the greenback after Jiji news agency reported the Bank of Japan had started to make arrangements to end its negative interest rate policy at the March 18-19 meeting.
Investors have been pricing in the chance of a change in policy this month, particularly after news of big pay hikes from some of Japan's biggest companies at this year's annual wage negotiations.
In commodities, U.S. crude settled up 1.93% at $81.26 a barrel and Brent settled at $85.42 per barrel, up 1.65% on the day, the highest settlement price since Nov. 6, after the International Energy Agency's (IEA) latest oil market report predicted a tighter market in 2024.
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