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Tech Bears Brunt of Inflation Shock As Output Rises: The Market Ends

(Bloomberg) – U.S. stocks fell in a broad-based sell-off and Treasury yields edged higher after hotter-than-expected inflation data boosted bets on a sharp Fed rally. Federal Reserve next week.

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The selling across the board sent the S&P 500 down more than 3%, while the tech-heavy Nasdaq 100 surpassed 4% as yield-sensitive stocks took the biggest hit. Swap traders are currently pricing in full at 3/4 percentage point upside, with bets rising for November moves and policy rates ultimately hitting around 4.3% at the start of the year. 2023.

Read more: ‘Wrong’ traders face the prospect of an even bigger Fed hike

The yield on the two-year Treasury note, most sensitive to policy changes, jumped to 22 basis points, pushing it more than 30 basis points above the 10-year yield and deepening the reversal. reverse in what is often considered a recession warning.

The consumer price index rose 0.1% from July, after being flat in the previous month, Labor Department data showed on Tuesday. From a year earlier, prices were up 8.3%, down slightly but still well above the average estimate of 8.1%. The so-called Core CPI, which excludes more volatile food and energy components, also topped the forecasts.

Read more: US rents rise the most since 1991 Keeping overall inflation high

“Overall, today was a surprising day for what appears to be some moderation across most indicators of growth and price pressures, so the Fed’s job is clearly not over. ,” wrote Rick Rieder, chief investment officer for global fixed income at BlackRock Inc., the world’s largest asset manager. “We think the Fed will pause the rate hike cycle potentially later in the year, but perhaps now the central bank will have to wait a bit longer to do so once it has reached its main stance. limited books.”

Other comments

  • Core inflation has peaked but, in a clear sign that the need for further rate hikes is unstoppable, the core consumer price index is once again rising, confirming the very difficult nature of the US inflation problem,” said Seema Shah, global strategist at Principal. Global investors, said in a note. “In fact, 70% of the CPI basket is seeing an annual price increase of more than 4% month over month. Until the Fed can tame that monster, there is simply no room for a pivot or pause discussion. “

  • Matt Peron, research director at Janus Henderson Investors, wrote: “The CPI report is a clear negative for the equity market. “The hotter-than-expected report means we will continue to come under pressure from Fed policy through rate hikes. It also pushes back any ‘Fed pivot’ the market hopes for in the near term. “

  • Steven Blitz, chief US economist at TS Lombard, said: “The fall in core costs of living as the labor market tightens with rapidly rising nominal wages won’t make for a fairy tale of soft landings. “. “The Fed has a better chance with a hard 8 than a soft landing.

  • “While today’s announcement suggests inflation remains at historic highs, there may be signs that inflationary pressures are easing,” said Richard Flynn, chief executive officer of Charles Schwab UK. said. “Corporate inventories are growing relative to sales, weakening global economic growth and a strong US dollar – all signs that price appreciation may be starting to slow. That said, inflation remains well above the Fed’s target.”

  • “I would buy this drop,” said Peter Tchir, head of macro strategy at Academy Securities. “We are facing bigger problems, but this seems like a hypothetical response to the data, omitting recent long periods of weakness, so I am a stock buyer. and bonds here.”

The latest inflation data comes amid debate over the outlook for the global economy and how that will affect markets. Stocks have rallied in recent days, with the S&P 500 index completing its biggest four-day gain since June on Monday. JPMorgan Chase & Co. said a soft landing is becoming the more likely scenario for the global economy, but the latest survey by Bank of America Corp. shows that the number of investors expecting a recession has reached its highest level since May 2020.

A measure of the dollar reversed the decline to trade 0.9% higher. Crude oil’s rally stalled as a stronger dollar offset concerns about global demand. Bitcoin has dropped below $22,000.

How much is your dollar bet ahead of the Fed decision? This week’s MLIV Pulse survey asks about the best occupations ahead of the FOMC meeting. Please click here to anonymously share your views.

Here are some key events to watch this week:

  • UK CPI, Wednesday

  • US PPI, Wednesday

  • US business inventories, manufacturing empire, retail sales, initial jobless claims, industrial production, Thursday

  • China home sales, retail sales, industrial production, fixed assets, unemployment rate surveyed, Friday

  • European CPI, Friday

  • University of Michigan Consumer Sentiment, USA, Friday

Some key moves in the market:

Inventory

  • The S&P 500 fell 3.1% at 2:15 p.m. New York time

  • Nasdaq 100 drops 4.2%

  • The Dow Jones Industrial Average fell 2.8%

  • MSCI World Index down 2.6%

Currency

  • The Bloomberg Dollar Spot Index is up 1%

  • The euro fell 1.3% to $0.9989

  • British Pound dropped 1.4% to $1.1519

  • Japanese yen fell 1.1% to 144.36 a dollar

Bonds

  • Yields on 10-year Treasuries rose 8 basis points to 3.44%

  • German 10-year yield rose 8 basis points to 1.73%

  • UK 10-year yield rose nine basis points to 3.17%

Goods

  • West Texas Intermediate crude fell 0.3% to $87.56 per barrel

  • Gold futures fell 1.5% to $1,714.30 per ounce

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