US data deal blow to rate cut hopes

LONDON

Markets fell in Asia and Europe on May 23 , tracking a sell-off on Wall Street sparked by a string of better-than-expected U.S. data that added to worries the Federal Reserve will hold off on cutting interest rates this year.

A weeks-long rally in equities has petered out in the past few days on profit-taking and as central bank officials pushed back against bets on an early reduction.

Confidence was dealt a further blow as a closely watched gauge of the services sector showed activity rose at its fastest pace in a year, while the factory sector also beat forecasts.

Meanwhile, fewer people than estimated made unemployment claims, suggesting the labour market remains tight.

The readings indicated the world's top economy was still in rude health, quelling the excitement sparked by last week's news that the consumer price index slowed in April after three months of topping forecasts.

"The data erase some of the cooling signals in recent outcomes and contrast the month-long run of broader U.S. data tending to surprise on the soft side," said Taylor Nugent of National Australia Bank.

The figures came after minutes from the Fed's May policy decision showed decision-makers wanted to keep borrowing costs elevated until they are confident prices are under control, while some even said they were willing to hike again.

FHN Financial's Chris Low said: "The minutes are a reminder that while the Fed does not see another rate hike as likely, and certainly does not see it as a base-case, it will not rule out hikes if inflation does not behave."

"It appears that markets are in the 'good [economic] news is bad market news' mode as they fret [over a] 'higher for longer' Fed," said Vishnu Varathan, of Mizuho Bank.