US stock futures plunged and Treasury yields spiked after a hot inflation reading all but assured another large Federal Reserve rate increase.
(Bloomberg) — US stock futures plunged and Treasury yields spiked after a hot inflation reading all but assured another large Federal Reserve rate increase.
Futures on the S&P 500 sank 2% after wiping out overnight gains. The index is already at a two-year low as the Fed aggressively throttles the economy in an effort to tamp down inflation. Those on the Nasdaq 100 dropped almost 3%.
A key gauge of US consumer prices hit a 40-year high in September, showing the central bank’s efforts have so far had little effect. Two-year Treasury yields soared and the dollar rallied in anticipation of more outsize rate increases.
Read more: Core US Inflation Rises to 40-Year High, Securing Big Fed Hike
The latest data added to evidence the harsh monetary medicine has yet to take hold and comes on the heels of last week’s payrolls figures that showed unemployment rate at a five-decade low in September.
“This isn’t the CPI report markets or the Fed were hoping for,” said James Athey, investment director at abrdn. “Inflation pressures remain stubbornly high. The reality is that for the foreseeable future the Fed is locked into a stance of unequivocal hawkishness. This will support bond yields and the US dollar but its yet more bad news for equities.”
Rates market bets now show traders fully pricing in a three-quarter point increase at the Fed’s November meeting. They now expect the central bank to push rates past 4.85% before the tightening cyle ends. The current rate is 3.25%.
Meanwhile, UK markets remained in turmoil almost two weeks after the government unveiled a plan to drastically cut taxes.
Speculation leaders may reconsider the controversial program sent the pound higher and yields on benchmark gilts tumbling more than 25 basis points.
Key events this week:
- Earnings this week include: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, BlackRock Inc., Delta Air Lines Inc., UnitedHealth Group Inc., U.S. Bancorp, Wells Fargo & Co.
- G-20 finance ministers and central bankers meet, Thursday
- China CPI, PPI, trade, Friday
- US retail sales, business inventories, University of Michigan consumer sentiment, Friday
- BOE emergency bond buying is set to end, Friday
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 2% as of 8:55 a.m. New York time
- Futures on the Nasdaq 100 fell 2.8%
- Futures on the Dow Jones Industrial Average fell 1.7%
- The Stoxx Europe 600 fell 1.3%
- The MSCI World index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.5% to $0.9659
- The British pound rose 0.8% to $1.1187
- The Japanese yen fell 0.3% to 147.32 per dollar
Cryptocurrencies
- Bitcoin fell 4.2% to $18,359.32
- Ether fell 6.4% to $1,215.85
Bonds
- The yield on 10-year Treasuries advanced 13 basis points to 4.03%
- Germany’s 10-year yield advanced seven basis points to 2.39%
- Britain’s 10-year yield declined 17 basis points to 4.27%
Commodities
- West Texas Intermediate crude fell 1.7% to $85.75 a barrel
- Gold futures fell 1.3% to $1,655.30 an ounce
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