8 US CPI data exceeded investors' expectations, causing market sentiment fluctuations again; Wande data showed that the Dow Jones Index fell 4.13% throughout the week, the S&P 500 fell 4.77%, and the Nasdaq fell 5.48%; last Friday was the third four Witch Day of the US stock market this year, when stock index futures, stock index options, individual stock futures and individual stock options expired at the same time; the trading volume on the four Witch Days on the day will usually be large, and the volatility will also increase significantly, representing the market's view of the next quarter to a certain extent; last Friday, the three major U.S. stock indexes all opened downward, and the bulls and bears have since fluctuated, and the decline narrowed by the close, and the decline did not exceed 1%.
8 US inflation data exceeded expectations
On September 13, the US Department of Labor released the US August CPI data, a year-on-year increase of 8.25% slightly lower than the previous value of 8.48%, but higher than the expected value of 8.1%. In the core CPI sector, it increased by 6.32% year-on-year, higher than the previous 5.91% and 6.1% higher than the market expectations. Inflation exceeded expectations and made the market worried that the Fed might even raise interest rates by 4 codes in this week's meeting; after the August inflation data was released, the three major U.S. stock indexes fell sharply, the 10-year U.S. Treasury bond interest rates rose to 3.4%, and the US dollar index broke through the 109 mark.
Source: US Bureau of Labor, as of 2022.9.13.
8 US inflation data exceeded expectations, and the main reasons can be observed from the CPI sub-item. Energy in August rose 23.8% year-on-year, down significantly from the previous value of 32.9%, and down 5% month-on-month, indicating that energy is no longer the main force in promoting U.S. inflation; the price of new car in August rose 10.1% year-on-year, which also slowed down from the previous value of 10.44%, and the prices of used cars and trucks fell more month-on-month; but on the other hand, rent in August increased by 6.25% year-on-year, 5.72% higher than the previous value of 5.72%, and also rose 0.7% month-on-month. Since the rent sub-item accounts for a high weight of CPI, the rise of this sub-item erased the decline of other sub-items and became the main driving force for the core CPI in August.
Source: US Labor Bureau Information Date: 2022.9.13.
Since the core CPI has not experienced a downward trend for two consecutive months, it also confirms what the Federal Reserve Chairman said in his speech at the annual meeting of the Global Central Bank in the early stage that it is too early to judge that the decline in inflation has been made in just one month. The core CPI data of the rebound prompted markets to worry that the Fed may raise more than just three-digit interest rates in September. According to data from CME FedWatch Tool, no investors have expected only 2-digit interest rate hikes in September. Currently, the probability of raising interest rates by 3 codes is 82%, and the probability of raising interest rates by 4 codes is 18%.
Source: CMEFedWatchTool Data Date: 2022.9.16.
Consumer confidence has risen
On September 16, the University of Michigan released the latest consumer confidence survey results. The consumer confidence index rose slightly to 59.5, and the current economic status index also rose slightly to 58.9. As energy prices continue to fall, the median expected inflation rate for the whole year fell to 4.6%, the lowest level since September last year; the median long-term inflation expectation was 2.8%, which fell below the 2.9-3.1% range for the first time since July 2021, indicating that consumers still have certain confidence that long-term inflation will return to normal levels, and also slightly improve market sentiment.
Source: University of Michigan, data as of 2022.9.16.
This week ushered in the global central bank week
will usher in the latest interest rate decisions from the United States, Japan and the Bank of England this week. In the minutes of the July meeting, the Federal Reserve said that members will assess the speed and amplitude of tightening in the coming quarters based on the impact of data on the economic outlook.As the national core CPI rebounded in August, and the 315,000 new non-agricultural employment in August hit a pre-epidemic high in 2020, it is expected that the Federal Reserve will focus on cracking down on the rise without worrying about the employment market. There is almost no suspense when the September meeting raises at least 3 digits. However, investors at this meeting can pay attention to the forecast value of interest rates for this year and next year revealed by the interest rate dot map released at the meeting, as well as the expectations for future adjustments to economic growth and unemployment rates in the meeting as a reference for layout of future markets.
In terms of the Bank of Japan, the US dollar/yen exchange rate approached the 145 mark last week. Japanese Finance Minister Shunichi Suzuki said on September 15 that if the yen continues to depreciate, the government will not rule out any option to prevent the yen from depreciating. Although the market expects the Bank of Japan to maintain interest rates unchanged, it is concerned whether it will make a statement on exchange rate policies; both the UK's inflation and core inflation hit record highs in July, and the European Central Bank also raised interest rates by 3 digits at its September meeting. Although the British Prime Minister Tras advocated limiting the rise in energy costs, raising interest rates in the short term may still be a good policy to resist inflation. Most of the market expects the Bank of England to follow up on interest rate hikes this week at least 2 digits, and may be able to further reduce the balance sheet.
Looking ahead, inflation is still a lingering shadow in the market, but after the recent sharp drop, the risk of the central bank's sharp interest rate hike has been partially released early. After this month's meeting, the pace of interest rate hikes may slow down in the future, and market volatility caused by interest rate policies may also be reduced. Investors should focus on reducing volatility this year. If interest rate hikes will slow down significantly in the future, they can moderately increase the proportion of risky assets from the perspective of medium and long-term layout.
