Wall Street stocks stabilize after sharp sell-off

US stocks steadied on Wednesday after the worst sell-off on Wall Street since June 2020, as hotter-than-expected inflation data boosted bets on a stronger Fed rate hike. Federal Reserve.

The broad S&P 500 and tech-heavy Nasdaq Composite were up 0.1% and 0.4%, respectively, by mid-afternoon in New York. The dollar fell 0.2% against a basket of six other currencies after gaining in the previous session.

Those moves come after the S&P posted its biggest drop since the early days of the coronavirus pandemic, falling 4.3% on Tuesday thanks to higher-than-expected inflation for August. Nasdaq closed low. more than 5.2%.

Consumer prices in the world’s largest economy rose 0.1% in August from the previous month, official data showed, versus expectations for a 0.1% drop. The annual rate was 8.3%, down from July’s 8.5% but higher than economists’ estimate of 8.1%.

The inflation report has raised investors’ expectations of how aggressively the Fed will raise borrowing costs, with futures markets now pricing in more than a third of the odds that the US central bank will raise borrowing costs. The period will raise interest rates by one percentage point this month. . A move of such magnitude would follow two consecutive gains of 0.75 percentage points.

The market is now expecting the Fed’s key rate to peak around 4.3% in March 2023, up about 0.3 percentage points since Monday.

March 2023 implied federal funds rate line chart (%) shows hot US inflation data boosting Fed rate hike expectations

“Two historically large price hikes this summer appear to have had a weaker immediate impact on the inflation landscape than anticipated, leading markets to believe the Fed,” said strategists at JPMorgan. may be forced to make a century increase.”

U.S. Treasuries were also more stable on Wednesday after the yield on the policy-sensitive two-year Treasury note surged to its highest since October 2007 in the previous session. Yields added 0.02 percentage points on Wednesday to 3.78% as the price of the debt instrument fell.

“Volatility and concerns about higher rates will remain,” said Patrick Spencer, vice president of equities at Baird. “We got the rate decision from the Fed next week and they were very hawkish [last month’s Jackson Hole economic symposium]. That will keep everyone on the sidelines.”

Europe’s regional Stoxx 600 share index fell 0.9%, extending losses from Tuesday’s session. London’s FTSE 100 loses 1.5%, even as UK inflation data for August arrived colder than expected. In Asia, Hong Kong’s Hang Seng index closed down 2.5%, while Japan’s Topix fell 2%.

New data on Wednesday showed the UK’s inflation rate fell back to single digits in August, well below the 9.9% expected year-on-year from 10. .1% of July.

Economists predict that the country’s inflation rate will hover around 10% until the fall after Prime Minister Liz Truss pledged to protect households from rising gas prices.

In currency terms, the yen fell to 144.95 yen against the dollar, around its weakest level in 24 years, before rebounding after the Bank of Japan conducted a “rate test”. ” with global banks, which is often seen as a precondition for intervention to calm currency volatility.

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