US open: Dow and S&P edge lower as US slips into deflation

US stocks were mostly lower on Thursday after disappointing data showed US had slipped into deflation.

Just before 10:00 in New York, the Dow Jones Industrial Average was down 0.17%, while the S&P 500 slipped 0.08% and the Nasdaq edged forward 0.07%.

US inflation data should show the discouraging effect of weakening oil prices on the overall level of consumer prices.

Core consumer prices, which strip out food and energy, rose 0.2% month-on-month and 1.6% year-on-year, in-line with economists’ estimates.

The headline consumer price index (CPI) however fell by 0.7% month-on-month after a revised fall of 0.3% in December.

Economists stressed that while the US had slipped into deflation, the Federal Reserve remained unlikely to change its policy.

“Fed officials have stressed that they expect this dip into deflation to be brief and they are more focused on where the inflation rate will be in two years' time, not where it is now,” said Paul Ashworth, chief US economist at Capital Economics.

However, analysts at Rabobank warned that while the deflation might be temporary, it could still pose a dilemma for the Fed.

“While deflation is likely to be temporary, because it is largely caused by the drop in oil prices in the second half of last year and core inflation is still 1.6%, it does raise a dilemma for the Fed,” they said in a note.

Meanwhile initial weekly unemployment claims unexpectedly jumped by 31,000 to reach 313,000 over the seven days ending on 21 February, according to the US Department of Labor.

Orders for durable goods rose by 2.8% on the month in January, coming in well ahead of the 1.7% rise which had been expected.

In company news, retailer Sears fell 2.06% after it reported its 11th straight quarterly loss as sales continued to tumble.

UIL Holdings soared 19.25% after Spanish utility Iberdrola announced plans to buy the power and gas distributor for $3bn in a cash and share deal.

Salesforce.com jumped 12.74% after announcing late on Wednesday it had registered strong growth in deferred sales, which indicate its future sales from a subscription-based business model.

Gold futures rose 1.07% to $1,214.40, while the dollar jumped almost 1% against the euro, rising 0.46% against the pound and 0.21% against the yen.

Having rebounded strongly on Wednesday, oil prices tumbled on Thursday, with West Texas Intermediate losing 2.9% to $49.56 a barrel, while Brent crude shed over 1% to $60.97 a barrel.