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Wall Street ends as hot inflation data raises likelihood of steep Fed rate hike

Wall Street ends as hot inflation data raises likelihood of steep Fed rate hike
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  • Fed funds futures now favor a 100bp rate hike in March
  • Twitter jumps after disclosure of Hindenburg’s long position
  • Delta Air Lines falls on missed second-quarter earnings
  • Indices down: Dow 0.67%, S&P 0.45%, Nasdaq 0.15%

NEW YORK, July 13 (Reuters) – US stocks ended slightly lower on Wednesday after investors digested hotter-than-expected US inflation data, stoking fears that the Federal Reserve may cut interest rates by as much as 100 basis points later this month could increase . . .

While all three major US stock indices bounced off their lows made earlier in the day and occasionally dipped into positive territory during the session, they were all red by the closing bell.

Annual consumer price growth accelerated to a scorching 9.1%, the hottest since November 1981, driven by an 11.2% monthly rise in gasoline prices. Continue reading

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Excluding volatile food and energy prices, which have declined since the report’s survey period, the core CPI slowed to an annual rate of 5.9%.

“You would expect the CPI (report) that we saw to be a big risk-off event, but the market shrugged,” said Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky . “(Investors) were already expecting a very hawkish Fed and I don’t think that affects much other than uncertainty and that has something to do with why the markets aren’t selling off today.”

The report increased the likelihood that the Federal Reserve will hike interest rates by more than the 75 basis points previously expected. Futures traders tied to the Fed funds’ target rate have now priced in the likelihood of a larger 100 basis point rate hike at the close of their monetary policy meeting later this month. Continue reading

“If the Fed looks beyond the headlines, they will see that commodity prices have already eased somewhat since the CPI survey period,” Mayfield said, adding that a 100 basis point rate hike is possible based on the June CPI report bring central bank policy “behind the curve”.

As can be seen in the chart below, the core CPI seems to confirm that inflation is continuing to ease off the March peak but still has a long way to go before approaching the central bank’s average annual inflation target of 2%:

The question of whether the Fed’s tightening could rein in inflation without plunging the economy into recession appears to be shifting to how severe the downturn is likely to be.

The Dow Jones Industrial Average (.DJI) fell 208.54 points, or 0.67%, to 30,772.79, the S&P 500 (.SPX) lost 17.02 points or 0.45% at 3,801.78 and the Nasdaq Composite (.IXIC) fell 17.15 points, or 0.15%, to 11,247.58.

Nine of the S&P 500’s 11 major sectors lost ground, including industrials (.SPLRCI) and communication services (.SPLRCL) suffer the largest percentage decline while consumer discretionary (.SPLRCD) enjoyed the greatest gain.

The second-quarter earnings season will be in full swing Thursday when JPMorgan Chase & Co. and Morgan Stanley are scheduled to report earnings, followed by Citigroup and Wells Fargo & Co. on Friday.

Last Friday, analysts saw annual S&P earnings growth for the April-June period totaling 5.7% versus the 6.8% forecast at the start of the quarter, according to Refinitiv.

Delta Air Lines shares (DAL.N) fell 4.5% after the airline’s second-quarter profits missed expectations, although Chief Executive Ed Bastian said strong travel demand would translate into a “significant” full-year profit. Continue reading

The broader S&P 1500 Airlines Index (.SPCOMAIR) fell 1.7%.

Tesla Inc gained 1.7% while chipmaker (.SOX) also gained ground.

Twitter Inc (TWTR.N) rose 7.9% after Hindenburg Research said it took a significant long position in the company’s stock. Continue reading

Declining issues predominated on the NYSE by a ratio of 1.37 to 1; on the Nasdaq, and the 1.08 to 1 ratio favored decliners.

The S&P 500 posted a new 52-week high and 41 new lows; the Nasdaq Composite posted 16 new highs and 231 new lows.

Volume on US exchanges was 10.66 billion shares, compared to the average of 12.56 billion over the past 20 trading days.

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Reporting by Stephen Culp; Additional reporting by Amruta Khandekar in Bengaluru; Edited by Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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