Inflation in the United States broke the table again, and the CPI in May hit a new 40-year high year-on-year, which surprised the market.

The three major U.S. stock indexes fell nearly 3%, the largest daily decline in three weeks and the largest weekly decline in more than four months. The Dow fell nearly 900 points. Most Chinese concept stocks rebounded against the market and became a rare bright spot among the Nasdaq 100 constituent stocks.

That’s bad news for the Fed, with rate hike expectations soaring to the highest level in this cycle, with Wall Street starting to debate whether the Fed will raise rates by 75 basis points, and even Barclays expects that rate hike next week.

A further spike in inflation could also spell more trouble for President Biden, whose approval ratings tumbled to new lows ahead of midterm elections later this year, where decades of high inflation are undermining the confidence of the American people.

Biden said after the release of the CPI data that we will try to keep inflation down and we will do everything we can to keep U.S. prices down.

U.S. inflation exploded again!

On June 10, the U.S. Bureau of Labor Statistics released data showing that the U.S. CPI rose 8.6% year-on-year, a new high since December 1981, and was higher than the previous month and the expected 8.3% increase; the CPI rose 1% month-on-month, significantly higher than expected 0.7% and 0.3% last month.

The core CPI rose 6% year-on-year, down from 6.2% in the previous month, but still higher than the expected 5.9%; the core CPI increased by 0.6% month-on-month, the same as the previous month’s increase, but higher than the expected 0.5%.

Energy costs have dominated the surge in the overall CPI. The energy price index rose 34.6% year-on-year, the largest year-on-year gain since September 2005.

Housing costs are rising sharply. Home prices rose 5.45% year-on-year in May, up from 5.14% in April and the highest level since 1991.

Inflation is spreading, and while the surge in goods prices is slowing (the smallest increase since September 2021), the cost of services is accelerating, now at the fastest pace since 1991.

Worst of all, real average hourly earnings in the U.S. fell 3.0% in May from a year earlier, marking the 14th straight month that price increases have outpaced wage gains.

U.S. stocks plunge, U.S. bonds tumble

The CPI data dashed hopes of peaking U.S. inflation, and the three major U.S. stock indexes opened lower.

In the end, the three major indexes collectively closed down for three consecutive days, the largest closing decline since May 18 for two consecutive days.

The Nasdaq continued to lead the decline, closing down 3.52% at 11340.02 points, hitting a new low since May 24, approaching the closing low since November 3, 2020, which fell below 11300 on May 24.

The S&P closed down 2.91% at 3,900.86 points, hitting a new low since May 19.

The Dow closed down 880 points, or 2.73%, at 31,392.79 points, a new closing low since May 20.

The value-heavy small-cap Russell 2000 closed down 2.73 percent, hitting a new low since May 25.

The tech-heavy Nasdaq 100 closed down 3.56%, underperforming the broader market, hitting a new low since May 24, and both the Russell 2000 and the Russell 2000 fell for three straight days.

The Chinese concept stock station B rose by more than 3%, Pinduoduo rose by more than 2%, and NetEase rose by nearly 2%, becoming a rare bright spot among the Nasdaq 100 constituent stocks.

Among the six major technology stocks of the original FAANMG and the current GANMMA, Amazon closed down 5.6% to a new low since May 25, Netflix fell 5.1% to a low since May 24, and Meta closed down nearly 4.6%, a record since April 27. At new lows, Apple and Microsoft, both in the IT sector, fell nearly 3.9% and 4.5% respectively, both hitting new lows since May 20. Google parent company Alphabet fell 3.2% to its lowest level since May 26.

These tech stocks have all fallen this week. Amazon fell more than 10%, Netflix fell more than 8%, Meta fell by nearly 8%, Microsoft fell by more than 6%, Apple fell by more than 5%, and Alphabet fell by nearly 3%.

U.S. Treasury yields rose across the board after the CPI announcement.

The yield on the benchmark 10-year U.S. Treasury note rose above 3.10 percent intraday for the first time in a month, up more than 10 basis points on the day.

The yield on the 2-year U.S. Treasury note, which is more sensitive to the outlook for interest rates, rose above 3.00 percent, the highest since 2008, and rose more than 18 basis points on the day.

Markets expect a more aggressive Fed

The U.S. CPI broke again in May, and traders expected the Fed to raise interest rates more aggressively.

Fed swaps show that the market expects the Fed to raise rates by 50 basis points at its June, July and September meetings. In addition, from the perspective of pricing, the market also expects a 50% probability of a 75 basis point rate hike in July.

Some analysts, following the May report, expected a high chance of a new year-on-year high for inflation as the next CPI report is likely to rise at roughly the same monthly pace. The Fed may still have to act aggressively, continuing to hike rates sharply after its July meeting.

More analysts predict that the Fed will raise interest rates by 75 basis points as soon as next week: Barclays has become the first major Wall Street institution to expect a 75 basis point rate hike in June, and it even expects a rate hike of this magnitude next week.

Barclays economist Jonathan Millar said that now the Fed has good reasons to raise interest rates in June by a rate that exceeds market expectations. The Fed may raise interest rates by 75 basis points in June or July, and now it is expected to be possible in June. Such a hike.

Quincy Krosby, chief equity strategist at LPL Financial, also mentioned that the Fed meeting next Tuesday to Wednesday will be particularly important, and the market wants to hear how the Fed is expected to fight costs that have exceeded economists generally forecast. There will obviously be more rate hikes ahead, but maybe the Fed will start talking about a 75 basis point possibility.

U.S. consumer confidence collapsed

The latest data showed that the initial value of the University of Michigan’s consumer confidence index in June was 50.2, a record low , significantly lower than the expected 58.2, and far below the final value of 58.4 in May.

In terms of inflation expectations, which are closely watched by the market, the initial value of one-year inflation expectations in June was 5.4%, which was higher than the expected 5.3%, and the final value in May was 5.3%. The 5.4% figure was unchanged from the previous high, both the highest since 1981.
“Throughout the survey, consumers were strongly concerned that inflation would continue to eat into their incomes, and the factors they cited were unlikely to abate anytime soon,” Joanne Hsu, director of the survey of Michigan Consumer Confidence, said in a statement. A record 88% of consumers expect U.S. interest rates to rise next year.

Consumers’ assessments of their personal finances deteriorated by about 20%. 46% of consumers attribute their negative view to inflation , up from 38% in May; only one survey since 1981, when the economy was already in recession state.

This article is reprinted from: https://news.futunn.com/post/16343275?src=3&report_type=market&report_id=207892&futusource=news_headline_list
This site is for inclusion only, and the copyright belongs to the original author.