Stocks tank following US CPI report
Stock markets were rocked by the stronger-than-expected US CPI reading, the headline number was 8.3%, but economists were expecting 8.1%. In the wake of the inflation data, the Fed swaps market is now fully pricing in another 75-basis points rate hike next week. Equity markets saw big rallies on the run up to today’s CPI report as bond yields were subdued, but the spike in yields was the catalyst for the slump in stocks. The US 10-year yield is closely watched, and it hit 3.43%, and keep in mind the 3.48% level seen in June was the highest in 11-years. Earlier today the S&P 500 hit its highest mark in over two-weeks, and now the index is down 3%. The technology-heavy NASDAQ 100 is off 3.9% ,as once again tech companies are under extra pressure as the sector has a relatively high level of debt.
The US dollar has suffered recently as dealers took the view that inflation would fall sharply and that would spark chatter the US is beyond peak inflation. As it turns out, CPI dipped to 8.3%, but that is still a long way from the Fed’s 2% target, and therefore the central bank could remain on track to keep carrying out large rate hikes. Last week, the US dollar index hit a 20-year high, and it is possible the rally we are seeing today is the beginning of the next leg higher. EUR/USD is down over 1%, and GBP/USD is off by 1.2%. Sterling is weaker across the board because of the largely disappointing UK jobs data. The unemployment rate fell to 3.6%, but some of the fall was attributed to people exiting the labour market, also the claimant count report increased by 6,300, which missed the -13,200 forecast. There are signs of weakness in the UK labour market at a time of mounting fears about an energy crisis, hence the tumble in sterling.
Gold took a knock on two fronts, the jump in the US dollar clobbered the asset, and the rise in yields also applied pressure to the commodity. Some investors who are looking for a lower risk investment might now be attracted by higher yields from government bonds. Silver took a beating also as the US dollar jumped, the surging dollar promoted dealers to book profits on the metal as it hit a three-week high yesterday. WTI is now in the red due to the overall risk-off sentiment in the market.