LONDON —
Stock markets hit reverse while the dollar shot higher Tuesday after data
showed that
US inflation slowed less than expected.
اضافة اعلان
The annual
consumer price index (CPI) slowed slightly in August to 8.3 percent from 8.5
percent in July, the Labor Department said in a highly anticipated report that
the Federal Reserve is watching closely.
However, the CPI
rose 0.1 percent on a monthly comparison in August, after holding flat in July,
according to government data Tuesday, a disappointing result amid widespread
expectations that inflation would fall in the month.
The dollar,
which had fallen against its major rivals in anticipation of a significant
slowdown in US inflation lessening pressure on the Fed to continue aggressively
raising interest rates, shot higher.
“Both headline
and core US CPI were substantially hotter than expected in August,” said market
analyst Jay Zhao-Murray at Monex.
He said this was
“leading currency and fixed income markets to embark on a swift and dramatic
reversal from recent price action, where traders and investors had largely
positioned themselves for a softer inflation print”.
He pointed to
core inflation that excludes volatile energy and food prices, which is what Fed
policymakers pay particular attention to. This rose by 0.6 percentage points
month-on-month, compared to a 0.3-point gain in July.
While markets
were already largely pricing in another 75-basis-point interest rate hike by
the Fed at its next gathering, there had been hopes that passing the inflation
peak would allow the Fed to relent.
However, the
inflation figures were “hotter than expected in August and put a chill on some
of the peak inflation/peak hawkishness/soft landing chatter”, said analyst
Patrick O’Hare at Briefing.com.
Stocks, which
had rebounded in recent days on hopes that a peak in inflation would allow a
rapid end to hawkish rate hikes and thus avoid a recession and attain a “soft”
landing of the economy, abruptly turned lower.
Gains in Europe
swiftly turned to losses and Wall Street plunged.
In late-morning
trading, the Dow was down 2.7 percent while the S&P 500 slumped 3.1
percent, and the tech-heavy Nasdaq Composite tumbled 4.1 percent.
Fed boss Jerome
Powell has indicated the rate increases would continue until inflation is
tamed.
Zhao-Murray said
market expectations regarding the Fed’s next rate hike had hardened following
the inflation data.
While some were
forecasting the possibility the Fed would drop to a half-percentage-point hike,
now a 0.75-point increase is seen as the floor and some are forecasting a
one-point hike.
Market analyst
Michael Hewson said Tuesday’s core inflation figures mean more aggressive rate
hikes will be needed to tame rising prices.
“While the
narrative of peak inflation may well be still valid, getting it down from these
levels is likely to be a much tougher battle,” he said.
Inflation has
soared around the globe this year owing to sky-high energy and food bills.
This has been
caused to a large extent by supply constraints after economies reopened from
pandemic lockdowns and in the wake of Russia’s invasion of Ukraine.
The dollar has soared as
the Federal Reserve moved earlier and more aggressively than other central
banks to raise interest rates and contain inflation.
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