Read more: Traders begin eyeing more Fed hikes after hot CPI
The consumer price index rose 0.1% from July after being flat the previous month, Labor Department data showed on Tuesday. Prices rose 8.3% year over year, a slight slowdown but still more than the average estimate of 8.1%. The so-called core CPI, which excludes the more volatile food and energy components, also beat forecasts. Shelter, food and medical care contributed the most to the price increase.
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“The recent rally in shares looked incredibly undervalued and premature,” said James Atty, chief investment officer at Abrdn. “This CPI number is very strong compared to consensus and will not be what the Fed wanted to see at all. The possibility of a slowdown in hikes after September is somewhat reduced as a result of these data.”
- “Headline inflation has peaked, but in a clear sign that the need to continue raising rates is not abating, core CPI is rising again, confirming the very tight nature of the US inflation challenge,” Seema Shah, Principal Global Strategist. Global Investors, the note said. “In fact, 70% of the CPI basket will see annual price increases of more than 4% compared to last month. Until the Fed can tame this beast, there is simply no room for discussions about dots or pauses.”
- “The CPI report was clearly negative for equity markets,” wrote Matt Perron, director of research at Janus Henderson Investors. “The hotter-than-expected report means Fed policy will continue to pressure through rate hikes. It also pushes back any “Fed reversal” that markets were hoping for in the near term.”
- “While today’s statement shows that inflation remains historically high, there may be signs that inflationary pressures are easing,” said Richard Flynn, managing director of Charles Schwab UK. “The company’s inventories are rising relative to sales, global economic growth has weakened, and the US dollar is strong – all indications are that price increases could begin soon. That said, inflation is still well above the Fed’s target.”
- “Despite some softening of long-term inflation expectations, recent data still broadly point to a picture of high inflation and a tight labor market,” said Silvia Dall’Angelo, senior economist at Federated Hermes Ltd. “This means that the risk of strengthening inflation through second-round effects is still elevated. Accordingly, the Fed is likely to follow its hawkish trajectory in the coming months.”
- “I would buy this dip,” said Peter Chir, head of macro strategy at Academy Securities. “There are bigger issues ahead, but this looks like an algorithm-driven response to the data, pushing out the recent weak lengths, so I’m a stock and bond buyer here.”
The latest inflation data comes amid a debate about the outlook for the global economy and how it will affect markets. Stocks have rallied in recent days, with the S&P 500 posting its biggest four-day gain since June on Monday. JPMorgan Chase & Co. said a soft landing is becoming a more likely scenario for the global economy, but the latest Bank of America Corp. showed that the number of investors anticipating a recession reached its highest level since May 2020.
The dollar reversed the decline and rose 0.9%. Crude oil gains stalled as a stronger dollar offset worries about global demand. Bitcoin dropped below $22,000.
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Here are some key events to watch this week:
- UK CPI, Wednesday
- US PPI, Wednesday
- US Commercial Inventories, Manufacturing Empire, Retail Sales, Initial Jobless Claims, Industrial Production, Thursday
- China Home Sales, Retail Sales, Industrial Production, Fixed Assets, Survey Unemployment Rate, Friday
- Eurozone CPI, Friday
- US University of Michigan Consumer Sentiment, Friday
Some of the major movements in the markets are:
- As of 11:55 a.m. New York time, the S&P 500 was down 3.1%.
- Nasdaq 100 down 4.2%
- Dow Jones Industrial Average fell 2.7%
- Stoxx Europe 600 fell 1.5%
- MSCI World index fell 2.5%
- Bloomberg Dollar Spot index rose 1%
- The euro fell 1.2% to $1.0002
- The British pound fell 1.3% to $1.1533
- The Japanese yen fell 1% to 144.24 per dollar
- The 10-year Treasury yield rose seven basis points to 3.43%
- Germany’s 10-year bond yield rose seven basis points to 1.73%
- The UK 10-year bond yield rose eight basis points to 3.16%
- West Texas Intermediate crude fell 1.5% to $86.42 a barrel
- Gold futures fell 1.6% to $1,713.20 an ounce