Stock markets hit reverse while the dollar shot higher Tuesday after data showing US inflation remains high and widespread.
Wall Street shares plunged, with the Dow losing nearly 1,300 points and the S&P 500 falling 4.3 percent, after the hotter-than-expected report, closely watched by the Federal Reserve as it prepares for its next interest rate decision next week.
Stocks had rebounded in recent days as investors clung to the hope that slowing price increases would allow the Federal Reserve to eventually pull back on its tough anti-inflation fight, but the data extinguished those hopes for now.
While the annual increase in the consumer price index (CPI) slowed slightly in August to 8.3 percent, monthly inflation actually rose 0.1 percent compared to July, the Labor Department said, a disappointing result amid widespread expectations that CPI would fall in the month.
More concerning, the report showed that excluding volatile food and energy prices, “core” CPI accelerated sharply in August, and rose 6.3 percent over the past 12 months, after the 5.9 percent pace seen in July and June.
Despite the welcome relief from falling gasoline prices, food, housing and medical care costs continue to rise.
The dollar, which had fallen against its major rivals in anticipation of slowing inflation, shot higher.
“Today was a crazy day,” said Greg Bassuk of AXS Investments, who added that the equities decline was “more than just a one-off overreaction.”
“I think part of the strong reaction today is based on the greater concern that investors in the market have about … the extent to which high prices have infiltrated in areas that were less anticipated,” he told AFP.
Gains in Europe swiftly turned to losses following the US inflation data.
Fed Chair Jerome Powell has made it clear the increases in the benchmark lending rate would continue until inflation is tamed.
Economists say the data confirm the Fed will announce a third consecutive three-quarter point increase next week, ending the slight possibility central bankers would opt for a more modest 0.5 point hike.
Market analyst Michael Hewson said the core inflation figures mean more aggressive rate hikes will be needed to tame rising prices.
“While the narrative of peak inflation may well be still valid, getting it down from these levels is likely to be a much tougher battle,” he said.
Inflation has soared around the globe this year owing to sky-high energy and food bills.
This has been caused to a large extent by supply constraints after economies reopened from pandemic lockdowns and in the wake of Russia’s invasion of Ukraine.
The dollar has soared as the Federal Reserve moved earlier and more aggressively than other central banks to raise interest rates and contain inflation.
Key figures at around 2100 GMT –
New York – Dow: DOWN 3.9 percent to 31,104.97 (close)
New York – S&P 500: DOWN 4.3 percent at 3,932.69 (close)
New York – Nasdaq: DOWN 5.2 percent at 11,633.57 (close)
EURO STOXX 50: DOWN 1.7 percent at 3,586.18
London – FTSE 100: DOWN 1.2 percent at 7,385.86 (close)
Frankfurt – DAX: DOWN 1.6 percent at 13,188.95 (close)
Paris – CAC 40: DOWN 1.4 percent at 6,245.69 (close)
Tokyo – Nikkei 225: UP 0.3 percent at 28,614.63 (close)
Hong Kong – Hang Seng Index: DOWN 0.2 percent at 19,326.86 (close)
Shanghai – Composite: UP 0.1 percent at 3,263.80 (close)
Euro/dollar: DOWN at $0.9974 from $1.0120
Pound/dollar: DOWN at $1.1500 from $1.1680
Euro/pound: UP at 86.74 pence from 86.64 pence
Dollar/yen: UP at 144.43 yen from 142.82 yen
Brent North Sea crude: DOWN 0.9 percent at $93,17 a barrel
West Texas Intermediate: DOWN 0.5 percent at $87.31 per barrel
© Agence France-Presse
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