After a sharp upward start, the financial markets turn around and return to negative territory. Shortly after 16:00 the Milan index, FtseMib, lost almost 0.80% while the Dax in Frankfurt fell by 1%. In decisive red Wall Street with the Dow Jones sinking by 2.16% while the Nasdaq marks a collapse of 3.5%.
The abrupt reversal was triggered by the disappointing data on US inflation that were released overseas in the early afternoon. US consumer prices, year on year, in August, slowed to + 8.3%, from + 8.5% in July. Analysts had expected a figure of + 8.1%. Month over month, inflation saw an increase of + 0.1%, compared to the previous figure of 0%, while analysts had expected -0.1%. The core figure, ie excluding the volatile components of food and energy, rose to + 6.3%, from + 5.9%, analysts expected + 6.1%.
The data arrived today from the US is considered by money managers a signal of further significant increases in interest rates by the Federal Reserve which will meet next week and most likely will raise rates by 75 basis points.
At this stage, the prevailing idea among traders is that US inflation has already reached its peak while Europe is still grappling with the energy and geopolitical crisis and still lags behind. The hypothesis is therefore of a normalization on the horizon in America. However, today’s inflation data raises new uncertainties on the current trend and feeds the debate on the outlook of the economy.
On the strengthening of the prospect of a Fed hike of 75 basis points, the bond market is also back in the sights. The yield on the Italian ten-year bond rose from 3.90% yesterday to 3.96%. The 10-year Treasury Note rose 3.43% from 3.31% while the German 10-year Bund is 1.71% from 1.65% yesterday.
The euro also returns to decline and falls to 1.0048 against the dollar, close to the parity regained in recent sessions. At the same time, the dollar-index, which reflects the exchange rate on major currencies, turned positive and gained 0.8% to 109.09 points.
“This month’s data tells us that consumers continue to experience upward pressures on the cost of living as homes, healthcare and the furniture industry all increased more than their July figures. […] Unless there is a substantial improvement in the core CPI, the Fed will be inclined to pursue a more restrictive monetary policy and for a longer time, in order to contain aggregate demand and bring inflation back to the 2% target. A goal that will probably not be achievable in the short term, ”says Jon Maier, CIO of Global X, regarding the US inflation figure for August.