/// US stocks experienced Black Tuesday: Nasdaq plummeted more than 5%, and only 5 S&P 500 stocks rose //
Due to the key US August CPI data on Tuesday, the rate of inflation slowing down was lower than investors' expectations, the market's expectations for the Federal Reserve to slow down its rate hike. The US stock market ushered in a brutal decline overnight : After the three major indexes collectively opened low, a long negative line gave up all the gains in the past four trading days.
According to media statistics, the Nasdaq Index, which fell more than 5%, and the S&P 500 Index, which fell more than 4%, both hit the largest single-day decline since June 2020. Among the S&P 500 stocks, there are only 6 stocks in total (5 rises and 1 closes) that are not falling at the close of today.
(Three major stock index minute charts and Dow Jones Daily charts, source: TradingView)
Regarding inflation data, US President Biden interpreted that the data itself shows the progress made in controlling inflation, but reducing inflation will take more time and determination. Another reason why
caused the stock index to experience a panic decline is the further deterioration of expectations for interest rate hikes. As of the close, CME's "Feder Watch" tool showed the probability of the Fed raising interest rates by 100 basis points next week, soaring from 0% yesterday to 33%. Nick Timiraos, a well-known journalist who is known as the "New Federal Reserve News Agency", wrote on Tuesday that the inflation data laid the foundation for the Federal Reserve to raise interest rates by at least 75 basis points next week and raise the possibility of continued sharp interest rates in the coming months.
(Source: CME)
Market dynamics
As of the close, the S&P 500 fell 4.32% to 3932.69 points; the Nasdaq fell 5.16% to 11633.57 points; the Dow Jones Index leaked more than 1200 points, at 31104.97 points.
US technology blue chips fell collectively, with Apple falling 5.87%, Tesla falling 4.04%, Amazon falling 7.06%, Google A falling 5.90%, and Microsoft falling 5.5%.
The economic restart concept stocks such as energy and aviation were not spared, with American Airlines falling 5.46%, Royal Caribbean Cruises falling 3.33%, Norwegian Cruises falling 2.70%, and Boeing falling 7.19%.
Chinese stocks listed in the United States fell generally following the general trend on Tuesday, with the Nasdaq China Golden Dragon Index closing down 3.27%, while Alibaba, Pinduoduo, Baidu, JD.com and Futu all fell by more than 5%.
// Biden suffered another setback and announced that it would take more time to reduce inflation //
On Tuesday (September 13), US President Biden delivered a speech on the latest inflation situation. Biden said that overall, prices in the United States have been basically flat in the past two months, which is good news for American families. However, it will take more time and determination to lower inflation in the United States.
Biden is trying to use a series of positive economic news to turn the Democratic Party’s biggest political burden into a selling point for the midterm elections, but an “out-of-time” inflation report emerged, causing his efforts to face setbacks.
Biden pointed out that "progress" has been made in curbing price increases, but there is still much work to be done. Biden avoided the embarrassing reality of rising inflation month-on-month, but pointed out some positive factors in the data. For example, gasoline prices fell sharply in August.
The national average price of regular gasoline was $3.72 per gallon on Monday, down 26% from a month ago, according to energy data and analytics provider OPIS.
Early, the latest data released by the U.S. Department of Labor showed that the U.S. Consumer Price Index (CPI) rose 0.1% month-on-month and 8.3% year-on-year in August. Analysts believe that the high year-on-year growth rate of CPI has once again strengthened the Fed's expectations of continued aggressive interest rate hikes.
It is worth noting that Biden will attend an event celebrating the Inflation Cuts Act later Tuesday, which was passed last month and its effect will take years to fully reflect.
According to a White House official, including cabinet ministers, members of Congress, as well as union workers, climate and health care activists will attend the celebration on Tuesday. The official also said Biden would stress that Republicans unanimously opposed the bill in Congress.
Although the decline in gasoline prices has suppressed the prices that would have risen, Biden has not escaped from the predicament in this regard. U.S. officials worry that U.S. gasoline prices are at risk of another surge if the EU starts restricting purchases of Russian oil later this year.
If inflation continues to be high, it will continue to put pressure on the Democratic midterm elections. Polls earlier this year showed that Democrats will suffer failures in both the Senate and House elections.
Gallup data shows that Biden's overall approval rating rose 6 percentage points to 44% at the end of August, his highest level in a year. On the economic side, Biden's scores are still particularly low, but the public's attention to inflation has declined.
/// expects a 100 basis point rate hike next week to significantly increase! Wall Street analyst: The idea is good but there is no need to //
As the US inflation data fell slightly faster than expected on Tuesday, the discussion on the Federal Reserve's interest rate hike next week instantly upgraded from "50 or 75 basis points" to "75 or 100 basis points." What makes the market even more panic is that in the eyes of Wall Street analysts, although 100 basis points are still not the mainstream expectations, the Fed does have reason to adopt a tougher path to rate hikes.
According to CME's "Feder Observation" tool, the probability of the Fed raising interest rates by 100 basis points next week has risen from 0% a day ago to 24% after inflation data was released on Tuesday.
(Source: CME)
. While Fed officials are in a silent period, Nick Timiraos, a reporter known as the "New Fed News Agency", also discussed this issue in his article on Tuesday, emphasizing that although the Fed has never raised interest rates by 100 basis points at one time since the early 1990s, and a series of officials also opposed such rapid rate hikes at the July FOMC meeting, don't forget that Powell said at the July press conference that if FOMC thinks it is appropriate, the Fed will not hesitate to take a bigger move than today (75 basis points).
Wall Street hotly discussed: It makes sense but not wise
Nomura Securities: raises the expectation of the Federal Reserve's FOMC rate hike in September from 75 basis points to 100 basis points, and at the same time raises the end-point interest rate expectations for February 2023 by 50 basis points to 4.5%-4.75%. In addition to next month's meetings, there will be two FOMC meetings in early November and mid-December this year. According to Nomura's expectations, the Federal Reserve will maintain the pace of hikes at least 50 basis points in a single meeting until at least early next year.
Interactive Brokers chief strategy analyst Steve Sosnick: markets will hate the idea (100 basis points rate hikes) just a few days ago we were still arguing whether 50 or 75 basis points rate hikes are enough to deal with the problem, and the Fed's rate hikes at a faster rate will be seen as a panic move.
Steven Englander, head of currency strategy research at Standard Chartered Bank G10: If you are in FOMC and want to reduce inflation expectations through shocks and awe, you may support the idea of 100 basis points in interest rates. But for FOMC, a smarter approach may be to show that interest rates will continue to rise as much as possible, but not rush to add them all at once.
0,000 Pantheon chief economist Ian Shepherdson: has 11 Fed members clearly stated that they will not slow down the pace of rate hikes before seeing the evidence of confidence. This means that the possibility of a 50 basis point rate hike next week no longer exists, but the speculation about a 100 basis point rate hike in market pricing is a bit too much.
Kate Moore, head of global theme strategy at BlackRock: has not changed the expectation of a 75 basis point rate hike next week, but it does need to adjust the path of interest rate hike at the end of the year. In fact, the market is beginning to include the impact of a 100 basis point interest rate hike, which has constituted an instability factor in the stock market.
Seema Shah, Global Strategy Director of Xinan Global Investment: There is no room for discussion to suspend interest rate hikes before the Fed tames inflation, but Powell has been paying close attention to communication with the market. If the final result points to 100 basis points, then we will receive a clear prompt, just like before the initial hike of 75 basis points.
This article is from Cailianshe
