Wednesday July 13th


Dow futures drop 400 points after much hotter-than-expected inflation report

U.S. stock index futures slid on Wednesday after June inflation data came in hotter-than-expected, contributing to growing fears that the Federal Reserve will get more aggressive in its fight to tame rising prices. Futures tied Dow Jones Industrial Average dropped 300 points, or 0.98%. S&P 500 futures fell 1.46% and Nasdaq 100 futures lost 2.13%. “There’s no spinning this, other than the Fed has to get more aggressive near term and crush demand. that cements a recession now, ” said Liz Ann Sonders of Charles Schwab. “I think a recession is an inevitability.” The consumer price index rose 9.1% on a year-over-year basis in June, coming in even higher than May’s 8.6% reading, which was the biggest increase since 1981. Economists surveyed by Dow Jones’ had anticipated an 8.8% print. Core CPI, which excludes food and energy prices, came in at 5.9% and above the 5.7% estimate. “The market is anticipating that June will be the new peak,” said Lindsey Bell, Ally’s chief markets and money strategist. “The reading is likely to confirm what the jobs report on Friday told us – that the Fed will stick to their aggressive rate tightening timeline.” The hot reading could prompt the central bank to hike another 75 basis points during this month’s meeting or raise expectations of an even larger increase to tame surging prices. Last month, the Fed raised its benchmark interest rates three-quarters of a percentage point to a range of 1.5%-1.75% in its most aggressive hike since 1994. “The core is chugging along at a frightening clip,” said Michael Schumacher at Wells Fargo. Fed funds futures are now pricing in an 81 basis points rate hike for July. That would indicate that some in the market expect a rate hike of more than 75 basis points, and 100 could happen. “With core running this strong, the Fed can’t ignore that. This is a bad number,” he said. Treasury yields surged on the news. The 10-year rate added 7 basis points to trade at 3.03%, while the 2-year jumped 11 basis points to 3.16%. Along with inflation data, investors on Wednesday continued to monitor second-quarter earnings for clues into the health of U.S. companies. Delta Air Lines shares slipped 3.5% in premarket trading after posting mixed results. Major banks including JPMorgan and Morgan Stanley are slated to post results Thursday. Shares in the Asia-Pacific were higher on Wednesday as China released trade data, and the Bank of Korea and Reserve Bank of New Zealand hiked rates. Hong Kong’s Hang Seng index gave up earlier gains to close 0.22% down at 20,797.95. Airline stocks rose after a report said quarantine-free travel may be allowed by November under some conditions, but also pared gains later in the day. Japan’s Nikkei 225 rose 0.54% to close at 26,478.77, and the Topix index gained 0.29% to 1,888.85. In South Korea, the Kospi advanced 0.47% to 2,328.61 and the Kosdaq was 1.65% higher at 763.18. Taiwan’s benchmark Taiex jumped more than 3% in morning trade after the finance ministry said it would use its stock stabilization fund to intervene in the market, according to Reuters. The index was last up 2.68%. Mainland China markets initially struggled for direction but closed higher. The Shanghai Composite was slightly higher at 3,284.29 and the Shenzhen Component rose 0.56% to 12,508.89. Oil reversed gains on Wednesday to turn lower after the latest inflation report came in hotter than expected. Brent crude declined 24 cents to $99.25 per barrel. U.S. West Texas Intermediate crude dipped 33 cents to $95.51 per barrel. “Although I don’t rule out more downside surprises, I believe the recent selloff could be getting a little overdone,” said Jeffrey Halley of brokerage Oanda. Gold prices steadied near an over nine-month low on Wednesday, as investors cautiously awaited U.S. inflation data for cues on the road ahead for the Federal Reserve’s monetary policy. Spot gold was 0.3% higher at $1,730.13 per ounce, after touching $1,721.98 earlier in the session, its weakest since late-September. U.S. gold futures gained 0.2% to $1,728.6.