The inflation panic is back on Wall Street. Wall Street ravaged by sales: at 15.50 Italian time, the Dow Jones collapsed by almost 600 points (-1.82%), to 31,792.96 points; the S&P slipped 2.24% to 4,019 points, while the Nasdaq Composite dropped about 3% to 11,904.
US inflation strikes a new blow to the US stock market and, consequently, to world equities. The long-awaited US consumer price index for the month of August was released today.
The numbers highlighted an increase in inflation higher than expected by economists, in some cases even a strengthening compared to the month of July.
In August, US inflation as measured by the consumer price index slowed to an annual rate of 8.3%, from + 8.5% in July. However, the weakening of the CPI index occurred at a slower pace than expected by the consensus of analysts, who had forecast an increase of + 8.1%.
On a monthly basis, headline inflation also rose by 0.1%, strengthening with respect to the unchanged figure in July, and confirming a growth higher, even in this case, than the estimates, which were for a decrease of 0.1%.
The core component of inflation further fueled investors’ fears, leaping by 6.3% on an annual basis in August, thus strengthening compared to + 5.9% in July, and well over the estimated + 6.1%; on a monthly basis, the core CPI index rose 0.6%, over the estimated + 0.3% and double the previous + 0.3% in July.
The numbers undermine hope that US inflation has peaked, and thus fuel fears that Jerome Powell’s Fed will continue on its path of aggressive rate hikes.
The reaction from Wall Street and US Treasury yields was immediate.
After the release of the data, Dow Jones futures tumbled to -500 basis points, discounting the prospect of a rundown of monstrous monetary tightening by Jerome Powell’s Federal Reserve.
The next announcement on US rates is expected on 21 September: at this point, a tightening of 75 basis points, the third in a row, is considered inevitable.
Indeed, according to Nomura economist Rob Dent, the inflation figure could also increase “the risk of a tightening by 100 basis points, although this is not the baseline scenario”. In any case, the market according to Dent “should consider the possibility that there will be another rate hike of 75 points also in November”. US Treasury rates are on fire: 10-year rates rise to 3.439%, 30-year rates exceed the 3.55% threshold, and two-year rates rise to 3.739%. At this point, according to the CME Group’s FedWatch trend, fed funds futures are pricing in a 75 basis point rate hike for the third time, next week, with a 100% probability.