by Wednesday witnessed US bonds race ahead following CPI data release and skidding market. According to the August Consumer Price Index, inflation soared higher than in July. The news hit stocks and other commodities on the financial markets that their prices fell.
Bonds Rose, Stocks Fell
Set off by rocketed inflation level, the two-year treasury bond levitated from its previous position. It had often displayed acute responses to policies implemented by the Fed. For instance, every time the Fed hiked the interest rate, it upped alongside.
Soon as CPI data dropped on Tuesday, it went to trade one basis point higher. A percentage estimation put it somewhere around 3.773 percent. Afterward, it rallied to a high of 3.805 percent, the highest it has traded since 2007.
During the trading session on Tuesday, it climbed up to 17bps. 1bp is equivalent to 0.01%. And unlike prices, yields move conversely.
A look at the standard treasury record showed that the yield on the ten-year bond only surged above 3bps. It had made a 3.45 percent profit in ten years. Meanwhile, that of the thirty-year ticker only stepped up by 2bps, valued at a 3.528 percent difference.
On the other hand, stocks traded lower after the CPI result got around. Every asset on the financial market started underpricing. S&P 500, NASDAQ, Asian stock, and Wall Street indexes dived promptly after the news broke.
Economic Reaction To Soaring Inflation
CPI for August revealed a 0.1% increase in the inflationary level from July. Traders who thought the recent fall in fuel prices signaled inflation had depleted were stunned when the news got out. Gas dropped 10.6% from its price last month.
Although, last week, the general market seemed to be finally settling, prompting economists to price the next interest rate at 75 basis points. Unfortunately, the CPI release caused them to switch up their stance. Now, many of these investors are pricing interest rates at 100bps.
Currently, the general perception is the Fed will go at full length to erase inflation, even if it means playing offensive. Therefore, the expectation from September’s FOMC meeting is a hundred percent hike in interest rate. Nomura’s economists are part of the groups sharing similar anticipation.
President Joe Biden declared in a meeting with pressmen that he is not worried about inflation as the US is only experiencing one-tenth of one percent. When probed further, he noted that the stock market is not an economic indicator; it says nothing about an economy. Furthermore, he added that the economy is sturdy, there is a low employment rate, and jobs are available.
Also, manufacturing is running smoothly. Thus, America will scale as this is only one of the challenges the country encounters.
Data on Mortgage Market Index (MMI) and Mortgage Application will be released Wednesday. Also, data on USOIL and gas will be out on the same day. Likewise, the annual and monthly Producer Price Index (PPI).
