On Tuesday (GMT+3), the US released its year-on-year Consumer Price Index (CPI) figure, showing that inflation came in at 8.3%, higher than the expected 8.1% but lower than the previous month’s 8.5%. The month-on-month core CPI change, meanwhile, came in at an increase of 0.6% versus an expected increase of 0.3%. While gasoline prices have been tumbling – crude prices are down around 25% from the last 3 months – this has been outweighed by rising prices for shelter, medical care and groceries.
The US equity markets hit a rout at the higher-than-forecast inflation figures on Tuesday, with major indices recording the largest one-day loss in over 2 years – the S&P 500 tumbled over 4%, while the Nasdaq plunged 5.5%. The dollar, meanwhile, staged a 1.49% rally that brought the euro back below parity even as the economic outlook in the eurozone continues to be downbeat.
Wednesday’s Producer Price Index (PPI) figures – which is another gauge of inflation – however, provided some relief for shares and risk-on players. Month-on-month PPI came in at the expected decrease of 0.1%, reflecting the decreasing price of energy. Headline PPI increased 8.7% in August, much lower than the 9.8% rise seen in July.
Major indices edged up, with the S&P 500 gaining 0.34%; while the US dollar cooled off as the dollar index dipped 0.15%.
Inflation reports are key now as they will influence the Fed’s upcoming interest rate decision on 21 September, especially since Fed Chair Jerome Powell has constantly reiterated that the Fed is prepared to continue raising rates to bring down inflation to its 2% target.
The markets have fully priced in a 75-point rate hike, while the money markets are now betting on a 1-in-3 chance that there will be a 100-point, or 1% rate hike.
Investors are now advised to pay close attention to the upcoming Core Retail Sales numbers for August, which will be released on 15 August at 15:30 (GMT+3). These figures measure consumer spending and give hints as to the economic strength of the US. A more robust economy will give the Fed more confidence to hike rates without tipping the US into a recession.
As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.