4.10pm: US markets tumble
US markets nursed heavy losses at the close rattled by stronger than expected inflation data which quashed hopes that the Federal Reserve could relent and scale back its policy tightening in the near future.
All three major US stock indexes veered sharply lower, snapping four-day winning streaks and notching their biggest one-day percentage drops in over two years.
The Dow Jones Industrial Average slid 1,276 points, or 3.9%, to 31,105, the S&P 500 tumbled 178 points, or 4.3%, to 3,933 and the Nasdaq Composite slumped 633 points, or 5.2%, to 11,634.
The drop erased nearly all of the recent rally for stocks, pulling the S&P 500 back toward its September 6th close of 3,908 and causing some traders to glance back at mid-June, when the index fell below 3,700.
“I think we may even go back and retest the June lows,” UBS director of floor operations Art Cashin said Tuesday on CNBC’s “Squawk on the Street.”
12.05pm: Wall Street remains wary
US indices were in the red at midday, as investor sentiment soured over the US Federal Reserve's plan to increase interest rates until it is clear inflation is on a downward path.
At midday, the Dow Jones Industrial Average had dropped almost 900 points, down by 2.7% to 31,497, the S&P 500 was down by 3.1% at 3,983, while the Nasdaq Composite was down by 4% at 11,779.
Michael Hewson, chief market analyst at CMC Markets UK, said the US consumer price index numbers have put a rocket under the dollar.
Those numbers showed that inflation slowed in August to 8.3% from 8.5%, but there was a bigger than expected rise in core CPI, from 5.9% to 6.3%.
“This week’s initial US dollar weakness was being fed by a belief that perhaps the peak for inflation is now behind us," Hewson said in a statement.
"That may well be true, and today’s US CPI numbers do nothing to change that narrative, because we have still seen a modest fall to 8.3%, but the rise in core prices means inflation is likely to be a lot stickier than perhaps markets had been pricing.”
Hewson also noted that he expects the US Federal Reserve to continue its interest rate hikes, starting with 75 basis points next week.
“Judging by today’s market reaction this narrative wasn’t the one that was being priced, with US two-year yields spiking to their highest levels since 2007, the US dollar surging and equity markets giving up their gains and sliding sharply into negative territory,” he said.
At midday, the major movers included S&P 500 stocks Corteva, up by 1.8%, while CF Industries was up by 1.5% and Abermarle was up by 1.2%.
On the downside, Meta Platforms and Nvidia dragged down the S&P 500, each falling by 7.5%, while Advanced Microsystems slid 7.3% and Eastman Chemicals and Caesars Entertainment both dropped 7%.
The Dow Jones was similarly in the red, with all major stocks showing declines, from the Travellers Company down by 0.9%, to Intel, which was down by 5%.
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9.35am: Inflation data points to 75bp hike, analysts say
US stocks opened firmly in the red after the release of hotter-than-expected inflation data for August which is expected to have locked in a 75 basis point interest rate hike by the Fed over a more moderate 50 basis point increase later this month.
Just after the open, the Dow Jones Industrial Average had shed 588 points or 1.8% at 31,793 points, the S&P 500 had dipped 91 points or 2.2% at 4,019 points, and the Nasdaq Composite had plunged 359 points or 2.9% at 11,908 points.
Evelyn Partners chief investment strategist Daniel Casali said, although the August CPI inflation surprised on the upside, there was still some evidence to show that the annual trend was peaking, at least in the near term.
“Importantly for financial markets (and the Fed), surveys of consumers’ inflation expectations are coming down from highs in line with peaking actual inflation,” he said. “Nevertheless, with annual rates of inflation elevated, the Fed will continue to raise interest rates into year-end.”
Pantheon Macroeconomics chief economist Ian Shepherdson added: “These data mean that the chance of a 50 basis point hike next week has gone but the 20% chance of a 100 basis point hike now priced-in looks over-the-top.”
9.15am: Inflation remains red-hot
US stocks plunged ahead of the open on Tuesday after new data from the US Bureau of Labor Statistics show inflation increased more than expected in August, likely locking in a 75 basis point interest rate hike from the Fed later in the month.
Futures for the Dow Jones Industrial Average were down 1.2% pre-market, the S&P 500 had sunk 1.7%, and the Nasdaq Composite had plunged 2.3%.
The headline consumer price index (CPI) for August came in at 8.3% year-over-year, higher than the consensus analyst expectation of 8.1%.
Inflation rose 0.1% month-over-month on a seasonally adjusted basis, after being unchanged in July.
“Increases in the shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all items increase. These increases were mostly offset by a 10.6% decline in the gasoline index,” the Bureau said.
6.30am: Has inflation peaked?
US stocks were expected to continue their recent rally at the start on Tuesday ahead of crucial inflation data for August which is predicted to show that price pressures in the world’s biggest economy may have already peaked.
The data is expected to bolster the hope that US interest rates, beyond September, will not have to be raised as aggressively as on previous occasions. These expectations are likely to shore up stock prices for now.
Futures for the Dow Jones Industrial Average were trading 0.4% higher pre-market, while those for the broader S&P 500 index added 0.4%, and futures for the tech-laden Nasdaq-100 were also ahead 0.4%.
Today’s data will be key as inflation is the data with the biggest influence on Federal Reserve interest rate expectations since rate setters declared war against inflation last year, noted Ipek Ozkardeskaya senior analyst at Swissquote Bank.
Market expectations point to a slowing inflation rate, with the headline figure seen easing steadily to 8.1% in August from 8.5% in July and the peak of 9.1% in June.
“A second month of a soft inflation read has the power to soften the Fed hawks and increase the bets of softer rate hikes beyond September,” added Ozkardeskaya.
“Odds for September won’t change even with a significantly soft inflation read. The Fed is almost fully expected to raise the rates by another 75 basis points at next week’s FOMC (Federal Open Market Committee) meeting. What will happen after is, however, up to the data,” she said.
The Federal Reserve has been raising interest rates steadily and aggressively throughout the year. A 75- basis point hike this month, will be the third such increase this year as rate setters seek to tame inflation which, as things stand, remains around 40-year highs.
“A sufficiently soft, and ideally softer-than-expected inflation read today should keep the Fed hawks at bay, and give further support to the bullish action in equity markets, whereas a figure above expectations, or worse, a figure above last month’s read could snap the latest rally and send the stocks tumbling,” Ozkardeskaya predicted.
The inflation data is due out at 8.30am ET. Looking ahead, US producer price data, due out on Wednesday, will also give a snapshot of price pressures in the pipeline.
Contact the author at jon.hopkins@proactive