Wall Street tries to recover, after the bloodbath following the shock caused by the publication of the US consumer price index, one of the most important parameters for monitoring the trend of inflation.
At about 12.10 pm Italian time, the futures on the Dow Jones rose by 114 points (+ 0.37%); futures on the S&P 500 are up 0.51% and futures on the Nasdaq Composite are up by 0.57%.
The major equity indices on Wall Street capitulated, attacked by strong sell offs. The S&P 500 Index ended its worst session since June 11, 2020.
Wall Street is back in the crosshairs of sales after four consecutive sessions of hikes.
The outcome of the strong disposals is the following: the Dow Jones slipped by almost -1,300 points (-1,278.37 points, a loss of 3.94% at 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.
Maximum attention to the inflation data measured by the CPI index, which triggered the alert on core inflation.
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 core inflation strengthened in the month of August.
US headline inflation 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%.
Looking at core inflation, the one that has fueled investors’ fears further, in this case the August trend was a jump of 6.3% on an annual basis, over + 5.9% in July, and even higher than 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 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%.