Warm U.S. inflation data reinvigorates global sales

Warm U.S. inflation data reinvigorates global sales
  • US CPI data leads to bets on more Fed rate hikes
  • The MSCI ACWI Global Equity Index is at its lowest point since July 2020
  • Wall Street and global stocks enter seventh day of decline
  • The dollar rises again, and the yen hits new lows in 1998
  • UK markets rise after government report on scrapping some tax cuts

LONDON (Reuters) – MSCI’s global stock index fell to its lowest level in July 2020 and dollar borrowing costs and bond markets rose on Thursday, as fresh inflation in a flaring U.S. raised challenges for another big Fed rate hike. .

Traders went straight into selling mode when the US Labor Department’s CPI report showed core CPI up 8.2% year-over-year. read more

That sent Wall Street futures prices down more than 2%, as the market opened and the S&P 500 index exited. (.SPX)European stocks (.stoxx) MSCI Global Lead Index (.MIWD00000PUS) Red every seventh day in a row.

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Global markets have had a warm two weeks, but US CPI data has eased fears that major economies will slide into deep recession until inflation remains under control.

A seemingly unstoppable dollar began its revival and the EUR, yen and Swiss franc fell/FRX, although sterling was still higher, after a report in which the UK government discussed scrapping additional tax cuts passed last month.

Economists said the central bank is expected to raise interest rates by at least 75 basis points next month, currently at 3.125%, and continue to hike next year. Markets are showing investors expect U.S. yields to hit 4.85% in March, up from 4.65% in May, which was priced in just before the data.

“Based on today’s inflation report, there is nothing in the market to believe that the central bank will raise interest rates by less than 75 basis points during the November meeting,” said Sima Shah, chief strategist at Prime Asset Management.

“A repeat of this kind of upbeat surprise next month could see a fifth consecutive 0.75% increase in December, as interest rates continue to fluctuate beyond the peak of US interest rate forecasts by the end of the year.”

Borrowing costs in bond markets are rising again.

The US 10-year yield rose again to above 4% from 3.89%. The two-year yield was at 4.5%, while the German 10-year bond yield rose to 2.304%, up from 2.229% just before the US data.

Earlier European data confirmed that Germany’s harmonized inflation was 10.9% in September and Sweden’s was 10%.

Minutes of the central bank’s latest policy meeting, released on Wednesday, showed that many officials “stressed that the cost of taking too little to reduce inflation would outweigh the cost of taking too much.”

However, many policymakers have stressed that it is important to “measure” the pace of further rate hikes to reduce the risk of “significant negative effects” on the economy.

Government bond yields in Europe remain volatile. Most also have a touch equivalent European income.

Markets estimate a 90% chance of the Fed raising interest rates by another 75 basis points in November, and a 10% chance of a half-point jump.

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In Asia, broad stock market weakness fueled Japan’s Nikkei index (.N225) 0.6% decline and South Korea Kospi (.KS11) A 1.8% drop overnight on news of Taiwanese chip giant TSMC (2330.TW) It saw a drop in demand and cut its investment budget by at least 10% to affect the technology sector in the wider region. read more

Hong Cheng in Hong Kong (.HSI) It fell 1.9% and documents from China’s main companies (.CSI300) The MSCI Asia Pacific index lost 0.3% to leave (.MIAP00000PUS.) About 2 1/2 years old.

“Financial markets are tighter and the risks of some crash are higher than I can remember,” said Tom Nash, fixed income portfolio manager at UBS Asset Management in Sydney.


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

The US currency hit a 24-year high of 147.2 yen, pushing the euro to a two-week low. Sterling rose nearly 1.5% to $1.1263 on reports of possible changes to tax cuts.

The yield on the 10-year gold standard bond, which broke last month after the UK government announced tax cuts, moved to 4.25% from a 14-year high of 4.632% in post-CPI trading.

The Bank of England insisted that emergency bond support would end on Friday, as originally announced, in light of media reports of continued aid if needed.

Bank of England Governor Andrew Bailey angered markets on Tuesday, saying UK pension funds and other investors were hit hard by falling bond prices ahead of a deadline to resolve their problems.

“I would say it’s heroic to say that the risk of some systemic problems has been averted because these are big steps,” said Paul O’Connor of Janus Henderson. “Markets still feel fragile.”

Meanwhile, crude oil markets gained momentum after falling 2% on Wednesday amid demand concerns.

Brent oil futures were up 23 cents, or 0.25%, at $92.69 a barrel, while US West Texas Intermediate crude was up 21 cents, or 0.2%, at $87.44.

Last week, the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia boosted prices when they agreed to cut stocks by 2 million barrels a day.

Unrest in the UK market
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Additional reporting by Kevin Buckland in Tokyo; Editing by Kirsten Donovan and Alexander Smith

Our criteria are: Thomson Reuters Trust Principles.

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