Investing in the US markets was a bit of a struggle on Wednesday. After the release of the monthly US consumer price index (CPI), the Dow Jones Industrial Average (DJIA) fell to its lowest level in more than two years. The S&P 500 (SNP) and the Nasdaq Composite Index (Nasdaq) also fell. This was followed by a rebound in stocks by late in the day. However, with the US Dollar still weak and Treasury yields on the rise, investors are nervous about tomorrow’s CPI data.
This is largely because of rising inflation in the U.S. The 12-month CPI has now reached its highest level since 1980. The core CPI has also reached its highest level in more than 40 years. The Fed is likely to raise rates at the next meeting on October 21. However, it is expected that the Fed will slow the pace of rate hikes over the next few months. In September, the CPI rose 0.2 percent, more than what was expected.
However, the 12-month CPI is still just a bit below its recent 9% peak. As a result, many investors are questioning if the Fed will be willing to slow the rate hikes.
Earlier this week, the Fed raised rates by 75 basis points for the third time in a row. It has also reaffirmed its commitment to rate hikes. Even if the rate hikes are not necessarily helping the economy, the Fed has pledged to keep raising rates to combat inflation. This will only further bolster bets that the Fed will raise rates at the next meeting.
On Friday, the Fed is expected to raise rates by another 0.75 percentage point. This is expected to keep pressure on the bond market and draw money out of stock markets. The 10-year Treasury yield is headed towards 4%. However, it is still below 4.7%. That leaves the spread between the 10-year and 2-year yields at -51 basis points.
A key concern for investors is whether the Federal Reserve will raise rates quickly enough to push the economy into a recession. If the October CPI comes in hotter than expected, that would be a huge negative for risk assets. However, if the CPI is cooler, that would be a positive for stocks. This could mean a rally for stocks.
The US consumer price index is expected to have increased by 0.4% in September. That is less than what was expected, but the Fed has vowed to continue raising rates in order to combat inflation. The 10-year Treasury yield is expected to cross the 4% level before the end of the month. In addition, the spread between the 10-year and 2-year U.S. Treasuries is headed for another record high.
The October 2022 CPI was positive for the first time in four months. It showed a significant increase in energy prices in October. This is positive news for oil and gas companies, who have been struggling with high prices. However, it is still well below its 9% peak from June