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Stocks tumble, dollar rallies as soaring U.S. inflation implies an aggressive Fed By Reuters


© Reuters. Pedestrians wait to cross a road at an intersection near a giant display of stock indexes in Shanghai, China, August 3, 2022. REUTERS/Aly Song/File Photo

By Sinead Carew

NEW YORK (Reuters) – On Tuesday, stocks reversed to rally sharply and US stocks fell as Treasury yields rose after data showed US consumer prices rose faster than expected in August, prompting more aggressive rate hikes by the Federal Reserve .

Oil futures turned red after Labor Department data on Tuesday showed falling gasoline prices in August were offset by increases in rent and food costs. The consumer price index rose 0.1% last month from expectations for a 0.1% decline and after being flat in July.

US stock indices were up Monday after gaining ground the week before as investors had expected Tuesday’s data to show some dampening in inflation and provide a path for the Fed to ease its policy tightening. [.N]

Moderating inflation is the key to higher stock prices and inflation is on the rise right now. That means volatility will remain the norm rather than the exception through the end of the year. said Terry Sandven, chief equity strategist at US Bank Wealth Management in Minneapolis.

“It clearly suggests that the Fed will deliver more of the same next week and remain steadfast in their dispute to tame inflation.”

It fell 967.37 points, or 2.99%, to 31,413.97, the loss was 135.93 points, or 3.31%, to 3,974.48 and it fell 510.05 points, or 4.16 %, to 11,756.36.

“With last week’s rally and yesterday, the market’s risk reward in this report was a little bit down anyway, even if we got a report that was in line or slightly below expectations. This report was a negative surprise with higher inflation,” said Mona Mahajan, senior investment strategist at Edward Jones.

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“This was another disappointment. It’s the old Charlie Brown analogy. Every time we’re ready to kick the ball, it gets moved away from us.”

The pan-European index closed 1.55% lower, while the MSCI index of equities around the world fell 2.69%.

In currencies, the dollar index rose 1.377%, while the euro fell 1.32% to $0.9985.

The Japanese yen weakened 1.03% against the greenback at 144.31 per dollar, while the pound sterling last traded at $1.1517, down 1.39% on the day.

“This will put the idea of ​​temporary inflation to bed for now and anchor US interest rates and the dollar significantly higher. The important thing here is that we are now looking at almost certain chances of a 75 basis point move next week,” said Karl Schamotta, chief market strategist at Corpay in Toronto. ()

Meanwhile, US Treasury yields rose and a recession warning – the yield curve inversion – broadened after inflation data also broke bond investors’ expectations, meaning the Fed will continue to tackle inflation.

Benchmark 10-year bonds last fell 18/32 in price to yield 3.4293%, from 3.362% late Friday. The 30-year bond last fell 1/32 in price to yield 3.5139%, from 3.513%. The 2-year bond last fell 12/32 in price to yield 3.7643%, from 3.571%.

The difference between two- and 10-year bond yields, which was seen as a harbinger of a recession, was -33.9 basis points. [US/]

Oil prices reversed previous gains and fell Tuesday after inflation data implied the Fed would make more hefty rate hikes and renewed COVID-19 inhibitors also weighed on crude oil prices China, the world’s second-largest oil consumer. .

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Oil is generally priced in US dollars, so a stronger dollar makes the commodity more expensive for holders of other currencies.

was down 0.54% to $87.31 a barrel and stood at $93.38, down 0.66% on the day.

The rising dollar also put pressure on the gold price. fell 1.1% to $1,704.47 an ounce. The US fell 1.45% to $1,705.00 an ounce.

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