Wall Street tries to recover after the worst session for the main equity indices since June 2020. To slow down the sales, which were resurfacing in the premarket, was today the publication of another data relating to US inflation: that of the index in PPI producer prices which, in August, on a monthly basis, fell by 0.1%.
The core component of the data, excluding the prices of food, energy and commercial services, rose by 0.2%, confirming that the growth in core inflation itself is becoming more rooted in the US economy. On an annual basis, good news came from the slowdown in the PPI index, which rose in August to the rate of 8.7%, in sharp retreat from + 9.8% in July, and the slowest pace of growth since August 2021. Core PPI inflation also turned around on an annual basis, up 5.6%, at the slowest pace since June 2021.
At 15.50 Italian time, the Dow Jones rises by 60 points (+ 0.20%), to 31.259 points, the S&P 500 advances by 0.17% to 3.955, the Nasdaq Composite has zeroed the gains, and travels around 12.110 points. points.
In reality, as confirmed yesterday by the shock data relating to US inflation measured by the consumer price index, the flare-up in prices in the United States is a long way from having subsided. Strong was the disappointment of investors, who have returned to harass the US stock market after four consecutive sessions of increases.
The outcome of the strong disposals was the following: the Dow Jones slipped by almost -1,300 points yesterday (-1,278.37 points, a loss of 3.94% on a percentage level), to 31,104.95. The S&P 500 fell 177.74 points (-4.32%) to 3,932.68 while the Nasdaq tumbled 632.83 points (or -5.16%), to 11,633.58 points.
Confirming how inflation is becoming more and more rooted in the US economy, and not only dependent on energy prices (which actually pointed downwards during the month), US inflation measured by the core CPI index is it strengthened in August.
It is true that US headline CPI inflation slowed to an annual rate of 8.3% from + 8.5% in July. However, the weakening occurred at a slower pace than expected by the consensus of the 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%.
Looking at core inflation, the one that has fueled investors’ fears further, in this case the trend in August of the CPI consumer price index was a jump of 6.3% on an annual basis, as well as + 5.9% in July, and even higher than the + 6.1% estimated; 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 ditched hope yesterday that US inflation has peaked, thus fueling fears that Jerome Powell’s Fed will continue on its aggressive rate hike path.
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”.
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. Not only that: the markets are pricing a monetary tightening of 100 basis points already in the September meeting with a rising probability, equal to 47%.
Yields on US government bonds continue to travel in positive territory, after the new records tested on the eve. Attention above all to the two-year Treasury rates, which today exceeded the 3.8% threshold, jumping up to 3.805%, the highest value since November 2007. And attention is now focused on ten-year rates, which they rose as much as 3.48%, a level close to 3.5% which corresponds to the record that yields tested this year, last June. Bank of America strategists reported that if 10-year Treasury yields breach the 3.5% threshold, they could soar as high as 3.69%, 3.88%, and then skyrocket. up to 3.98% and 4.05%.