wall street has closed the session on Tuesday with very strong losses (Dow Jones: -3.94%; S&P 500: -4.32%; Nasdaq: -5.16%) behind the bullish rally of the last days. Investors had priced in the past four sessions that the August inflation in the US was going to moderate due to the drop in gasoline, but the general rate of CPI has fallen less than expected, while the Core CPI It has risen twice as much as forecast. The bad inflation data has led the Dow Jones to register its worst day since june 2020.
The August CPI has moderated to 8.3% from 8.5% in July, although the consensus expected a greater drop, to 8.1% year-on-year. Besides, the underlying ratewhich excludes food and energy, has risen 0.6% and has been located in the 6.3%double what the market expected.
The data has been a ‘jug of cold water’ for stock markets, because it shows that the rise in prices in the US is more persistent than anticipated. And this will force the Federal Reserve (Fed) to maintain an aggressive monetary policy, with interest rate hikes and balance sheet reduction, which is negative for stock market valuations.
In this sense, the consensus discounts, with an 82% chance, that the increase at the next meeting on September 21 will be 75 basis points for the third consecutive time, although the probability of a 100 bp raise has gone from 0%, a month ago, to a 18% today.
This Monday was published Consumer Expectations Survey for August conducted by the New York Fed., which indicated a drop in inflation expectations at one, three and five years, which was well received by the market. However, the CPI data has indicated that controlling inflation will be a difficult task for the central bank. The fight against high inflation is far from over.
THE ASSESSMENT OF THE EXPERTS
«The surprisingly strong CPI for August indicates that inflation remains more persistent than desired, despite a 10.6% drop in gasoline prices«, indicate the experts of Oxford Economics.
These analysts point out that there have been notable increases in most indicators, both in basic services and basic goods. Therefore, they consider that the Fed will maintain its aggressive rate hikes and will raise interest rates by another 75 basis points at the meeting on September 21and will apply additional increases of another 75 basis points until the end of the year, which will raise the price of money in the US to 3.75%-4%.
«Nevertheless, if inflation remains too persistent, it raises the risk that the Fed will continue to tighten policy further«, they conclude.
COMPANIES AND OTHER MARKETS
At the business level, technology companies are the ones that have suffered the most after knowing these data. Meta and Nvidia have yielded 9.37% and 9.47% respectively, while Apple and Microsoft they have cut 5.87% and 5.50%. Intel has lost 7.19%.
Twitterfor its part, has risen 0.8% after its shareholders have approved Elon Musk’s offer to take over the social network.
In other markets, the west texas oil has fallen by 0.32% ($87.51) and crude Brent has fallen by 0.67% ($93.37), while the euro it has depreciated 1.45% ($0.9972) after the recovery experienced by the ‘greenback’ after the inflation figure.
Besides, the ounce of gold has fallen by 1.55% ($1,713) and the profitability of the 10 year US bond has risen to 3.4%. Lastly, the bitcoin it has sunk 9% ($20,251).