Searing US inflation data boosts global selloff

  • US CPI data prompts bets on more big Fed rate hikes
  • MSCI’s ACWI Global Equity Index at lowest since July 2020
  • Wall Street and global stocks head for 7th day of falls
  • Dollar appreciates again, yen at 1998 low
  • UK markets jump on government report considering scrapping some tax cuts

LONDON, Oct 13 (Reuters) – The MSCI global equity index hit a July 2020 low and borrowing costs in dollars and bond markets rose on Thursday as another red reading for U.S. inflation cemented bets of another big Fed rate hike next month.

Traders went straight into sell mode as the US Department of Labor’s Consumer Price Index (CPI) report showed the headline CPI rising at an annual rate of 8.2% and the Core CPI, which eliminates food and fuel price volatility, came in at a better than expected 6.6%. Read more

It sent higher Wall Street futures falling more than 2% at the market open and left the S&P 500 (.SPX), European stocks (.STOXX) and MSCI’s main global index ( .MIWD00000PUS) all faced a seventh straight day. in the red.

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Global markets have endured a torrid few weeks, but US CPI data is at the heart of concerns that major economies will need to be pushed firmly into recession for inflation to come into line.

The seemingly unstoppable dollar came to life, pushing the euro, yen and Swiss franc lower / FRX, although the pound sterling was still on the rise after a report that the UK government was considering removing more of its cuts. taxes announced last month.

Economists said the Fed should now raise rates, which currently sit at 3.125%, by at least 75 basis points next month and continue to raise them next year. Markets show that investors now expect U.S. rates to peak around 4.85% in March, down from a peak of 4.65% in May that was priced in just ahead of the data.

“After today’s inflation report, there can’t be anyone in the market who thinks the Fed can raise rates by less than 75 basis points at the November meeting,” he said. Seema Shah, chief strategist at Principal Asset Management.

“If this kind of upside surprise repeats itself next month, we could be facing a fifth consecutive 0.75% hike in December with policy rates topping the Fed’s peak rate forecast before the end of this month. year.”

In bond markets, borrowing costs rose again.

The benchmark US 10-year yield jumped again above 4% after hitting 3.89%. Two-year rates hit 4.5% while German 10-year bond yields hit 2.304%, down from 2.229% just ahead of the US data.

Earlier European data had confirmed that German harmonized inflation was 10.9% year-on-year in September and close to 10% in Sweden as well.

Minutes from the Fed’s latest policy meeting released Wednesday showed that many officials “stressed that the cost of taking too little action to reduce inflation likely outweighed the cost of taking too much action.” .

Several policymakers, however, stressed that it would be important to “calibrate” the pace of further rate hikes to reduce the risk of “significant adverse effects” on the economy.

Treasury yields have been volatile in Europe. with most equivalent European yields down a bit too.

Markets are pricing in a 90% chance of another 75 basis point Fed rate hike in November, versus a 10% chance of a half-point hike.

FEED

CONCERNED

In Asia, widespread stock market weakness had seen the Japanese Nikkei (.N225) slip 0.6% and the South Korean Kospi (.KS11) fall 1.8% overnight, as the Taiwanese giant chipmaker TSMC (2330.TW) saw demand plummet and cut its capital budget by at least 10% hit the region’s wider tech sector. Read more

Hong Kong’s Hang Seng (.HSI) fell 1.9% and mainland China blue chips (.CSI300) lost 0.3% to leave the MSCI Asia Pacific Equity Index (.MIAP00000PUS) close. from its lowest level in two and a half years.

“The risk of an episode of excessive tightening and a financial market mishap is higher than I remember,” said Tom Nash, bond portfolio manager at UBS Asset Management in Sydney.

HEROIC

The dollar index, which measures the greenback against six major rivals, jumped more than 0.5% to 113.65 after the CPI data.

The US currency hit a new 24-year high at 147.2 yen and pushed the euro to a 2-week low. The pound was still up after climbing almost 1.5% to $1.1263 on reports of possible tax cut changes.

Benchmark 10-year gilt yields, which erupted after the UK government presented tax cut plans last month, fell from a new 14-year high of 4.632% to 4.25% in post-IPC trade.

The Bank of England has insisted its emergency bond market support will expire on Friday as originally announced, contradicting media reports of continued aid if needed.

BoE Governor Andrew Bailey riled markets on Tuesday by saying UK pension funds and other investors hit hard by falling bond prices had until a deadline to resolve their issues.

“I would say it’s heroic to say that the risk of some kind of systemic problem has been extinguished because these are big moves and we don’t know now how much deleveraging needs to be done,” Paul O’Connor said. by Janus Henderson. “Markets still feel very dysfunctional.”

Meanwhile, crude oil markets rallied after falling 2% on Wednesday amid concerns over demand.

Brent crude futures jumped 23 cents, or 0.25%, to $92.69 a barrel, while U.S. West Texas Intermediate crude rose 21 cents, or 0.2%, to 87, $44 a barrel.

Last week, the producer group made up of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, pushed prices higher by agreeing to cut supply by 2 million barrels per year. day (bpd).

Turbulence in the UK market

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Additional reporting by Kevin Buckland in Tokyo, editing by Kirsten Donovan and Alexander Smith

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