Tuesday September 13th


Stocks fall sharply as hot inflation report points to more aggressive Fed, Nasdaq slides nearly 3%

U.S. stock markets index futures dropped on Tuesday morning after an August inflation report came in hotter than expected. Dow Jones Industrial Average futures sank 525 points, or about 1.6%. S&P 500 futures fell more than 2% and Nasdaq 100 futures slid 2.7%. The August consumer price index report showed a higher-than-expected reading for inflation. Headline inflation rose 0.1% month over month, even with falling gas prices. Core inflation rose 0.6% month over month. On a year over year basis, inflation was 8.3%. Economists surveyed by Dow Jones had been expecting a decline of 0.1% for overall inflation, with a rise of 0.3% for core inflation. The report is one of the last the Fed will see ahead of their Sept. 20-21 meeting, where they’re expected to deliver their third consecutive 0.75 percentage point interest rate hike to tamp down inflation. The unexpectedly high August report could lead the Fed to continue its aggressive hikes longer than some investors anticipated. The move in futures comes after four straight positive sessions for U.S. stocks, which were bolstered in part by the belief of many investors that inflation had already peaked. “The CPI report was an unequivocal negative for equity markets. The hotter than expected report means we will get continued pressure from Fed policy via rate hikes,” said Matt Peron, director of research at Janus Henderson Investors. “It also pushes back any ‘Fed pivot’ that the markets were hopeful for in the near term. As we have cautioned over the past months, we are not out of the woods yet and would maintain a defensive posture with equity and sector allocations.” Asia-Pacific markets were higher on Tuesday as investors look ahead to the U.S. inflation report for the month of August. South Korea’s Kospi rose 2.74% to 2,449.54 on its return to trade after a holiday Monday – led by Samsung Electronics which advanced 4.5% and SK Hynix that rose 4.87%. The Nikkei 225 in Japan gained 0.25% to 28,614.63, and the Topix index ticked 0.32% higher to 1,986.57. In Australia, the S&P/ASX 200 rose 0.65% to 7,009.70. Mainland China’s Shanghai Composite ticked fractionally higher to 3,263.80, while the Shenzhen Component added 0.385% to 11,923.47. The Hang Seng index in Hong Kong was 0.17% lower in the final hour of trade. Oil prices declined in volatile trade on Tuesday as worries about tight fuel supplies ahead of winter offset investor concerns about lower demand in China, the world’s biggest crude importer, and further increases in U.S. and European interest rates. Brent crude declined 48 cents to $93.52 per barrel, while WTI crude fell 39 cents to $87.39 a barrel. Both contracts fell by more than $1 earlier in the session. Worries over tighter inventories continue to support prices. Gold prices steadied into a tight range on Tuesday as investors held off on large bets ahead of key U.S. inflation data that could influence the size of future Federal Reserve interest rate hikes. Spot gold was down at $1,699 per ounce. Prices hit a two-week high of $1,734.99 on Monday as the dollar fell. U.S. gold futures were down 0.1% to $1,738.90.