Markets Remain Volatile after US Inflation

Markets Remain Volatile after US Inflation
Yesterday's volatility was not surprising, given that investors had hoped for a completely different set of numbers, leading to a quick and violent sell-off in risk assets.

US inflation coming in hot

According to data released by the US yesterday, the Core Consumer Price Index (CPI) increased from 5.9% in July to 6.3% in August on an annual basis. Inflation in the US (and in the rest of the world) is certainly not slowing.

Following yesterday's CPI data, markets now price a 25% chance of a 100bps rate hike at the Fed's next week's meeting. As a result, The 10-year US Treasury note's yield increased to 3.412%, while the 2-year note's yield is now at 3.76%, the highest since November 2007.

The dollar index DXY, which compares the value of the dollar to a basket of currencies, increased 1.5% to 109.85, marking the largest percentage rise in a single day since March 2020.

On the other hand, US equity indices dropped 5-6%, marking the biggest one-day decline since the COVID crash in March 2020.

"The external environment of a European energy crisis, a China slowdown, and a strong dollar combined with ongoing interest rate hikes domestically and a slower housing market raise concerns about the growth story heading into year-end," analysts at ING wrote in a note.

Data on July's industrial production will be on the economic calendar for Europe, and later in the day, the Producer Price Index (PPI) numbers will be revealed to the public by the US Bureau of Labor Statistics.
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