US open: Stocks fall after inflation data misses forecasts

At 1520 BST the Dow Jones Industrial Average dropped 0.76%, the S&P 500 dipped 0.81% and the Nasdaq shed 0.86%.

At the same time oil prices were lower with West Texas Intermediate down 3.02% to $46.58 per barrel and Brent crude down 2.8% to $47.60 per barrel at 1522 BST.

The Federal Reserve on Wednesday left interest rates unchanged at 0.25% to 0.50%, as widely expected, with Chair Janet Yellen conceding that the upcoming UK referendum had been a factor in the decision. The central bank downgraded its economic growth forecasts and the projections of policy members showed a majority still wanted two rate hikes this year, but six of them now expect only one compared to one member in March.

“The Fed’s belief that ‘gradual increases in the federal funds rate’ are appropriate has been overshadowed by talk of a ‘loss of momentum’ in the US labour market and a reiteration of the need to ‘proceed cautiously’,” said CMC Markets analyst Jasper Lawler.

“The changes in the dot plot combined with Ms Yellen’s emphasis on caution takes July off the table for a rate hike, and more than likely September too.”

Meanwhile, US inflation rose an annualised 1.0% in May, down from the previous month’s 1.1% and missing estimates for unchanged growth. On the month the consumer price index increased 0.2% in May, slowing from the prior month’s 0.4% increase. Economists had expected a 0.3% month-on-month gain. The slowdown in inflation was driven by a decline in food prices.

“Overall, the Fed’s forecasts that inflation will accelerate by only 0.1% points per year are hard to square with the evidence here of a clear acceleration in core services inflation, which will soon be compounded by a fading of the drag on goods prices from the stronger dollar,” said Paul Ashworth, chief US economist at Capital Economics.

The number of Americans filing for unemployment benefits rose more than expected last week, according to the Labor Department. US initial jobless claims were up by 13,000 to 277,000, missing expectations of a slightly smaller increase to 270,000.

Sentiment among US housebuilders improved a touch in June. The National Association of Home Builders/Wells Fargo housing market index nudged up two points to 60. This was slightly above the reading of 59 expected by economists and marked the highest reading since January.

In corporate news, Earthstone Energy's shares tumbled after announcing a public offering of 4.5m common shares at $10.50/share, raising $44.7m in net proceeds.

Kroger Co. gained after reporting its earnings rose 9.9% in the latest quarter, even as the supermarket chain warned that it expects its 2016 per-share earnings will come in at between the low end and middle of its previous guidance due to weak fuel margins.

Drug giant Merck rallied after saying a trial investigating the use of its lung cancer treatment met its primary endpoint.