Markets have begun pricing in the possibility of a 1% rate hike by the Fed next week
Wall Street equities tumbled on Tuesday to log their worst day since June 2020 after the official report showed that US consumer price index rose 8.3% over the prior year and 0.1% over the prior month while economists had expected a decline of 0.1% over the prior month to 8.1% on a yearly basis. Following the release, investors are pricing in an 82% chance of a 0.75% rate hike next week and an 18% chance of a 1% rate hike by the Fed. As such, the Dow Jones Industrial Average slid 1nearly 4%, the S&P 500 dropped 4.32%, and the Nasdaq Composite sank 5.16%.
Following Wall Street rout, Asian stocks slumped on Wednesday, with the MSCI Asia Pacific Index losing as much as 2.1%, the most in two weeks. So, as the risk-off mood continued in Asian hours after higher-than-expected US inflation data, Hong Kong’s technology-heavy Hang Seng index was one of the worst performers in the region, down 2.45%, while Japan’s Nikkei 225 index shed 2.78%. Adding to a more downbeat tone in the region, there were reports that the US was considering new sanctions against Beijing to deter a potential invasion of Taiwan.
As investors continued to react to the latest inflation data out of the US, European markets opened slightly lower on Wednesday in catch up to the heavy losses in the equities space yesterday. The pan-European Stoxx 600 was down 0.2% in early trade, with retail stocks bucking the trend to rally about 2%. In individual stocks, shares of KION Group plunged nearly 20% after the German company announced that it expects to report a third-quarter loss.
Markets have begun pricing in the possibility of a 1% rate hike by the Fed next week after the inflation report. Against this backdrop, the US dollar rallied across the market, both amid strong data and risk aversion across the globe. The USD index climbed back to the 110.00 mark to come under some pressure on Wednesday following yesterday’s jump by 1.5%. As such, EURUSD slipped back from the 1.0200 zone to settle below both parity and the descending 20-DMA. It looks like recovery attempts in the near term could attract renewed selling pressure surrounding the shared currency.
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