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Futures Tumble, Yields Spike on Inflation Shock: Markets Wrap

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(Bloomberg) — US stock futures plunged and Treasury yields spiked higher after American prices rose faster than expected last month, likely clearing the way for the Federal Reserve to raise interest rates sharply at its next meeting.

Futures on the S&P 500 erased gains to trade lower by more than 1.5%. The cash index had rallied four straight days on anticipation that inflation had peaked and the Fed would be able to avert a sharp recession. The two-year Treasury yield jumped about 10 basis points. Swaps traders are now pricing in a rate increase of three-quarters of a percentage point. A gauge of the dollar reversed a decline to trade 0.6% higher.

The consumer price index increased 0.1% from July, after no change in the prior month, Labor Department data showed Tuesday. From a year earlier, prices climbed 8.3%, a slight deceleration but still more than the median estimate of 8.1%. So-called core CPI, which strips out the more volatile food and energy components, advanced 0.6% from July and 6.3% from a year ago, also topping forecasts.

“The recent bounce in equities looked incredibly ill-judged and premature,” said James Athey, investment director at Abrdn. “That CPI number is very strong relative to consensus and will not be what the Fed wanted to see at all. The chance of the pace of hikes slowing after September has receded somewhat as a result of this data.”

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

The Stoxx Europe 600 index reversed an advance, with real estate and retail shares leading the decline. The rallyu in crude oil stalled as the dollar’s ascent offset global demand concerns. Bitcoin fell below $22,000.

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

Here are some key events to watch this week:

UK CPI, Wednesday

US PPI, Wednesday

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

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

Euro area CPI, Friday

US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

Futures on the S&P 500 fell 1.8% as of 8:53 a.m. New York time

Futures on the Nasdaq 100 fell 2.4%

Futures on the Dow Jones Industrial Average fell 1.4%

The Stoxx Europe 600 fell 0.5%

The MSCI World index fell 0.2%

Currencies

The Bloomberg Dollar Spot Index rose 0.6%

The euro fell 0.6% to $1.0057

The British pound fell 0.9% to $1.1581

The Japanese yen fell 0.8% to 143.99 per dollar

Bonds

The yield on 10-year Treasuries advanced six basis points to 3.42%

Germany’s 10-year yield advanced six basis points to 1.71%

Britain’s 10-year yield advanced six basis points to 3.14%

Commodities

West Texas Intermediate crude fell 0.7% to $87.14 a barrel

Gold futures fell 1.2% to $1,720.20 an ounce

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

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