# Hot U.S. inflation data reignites global selloff
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-10-13
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Global stock index plunges as U.S. inflation data fuels Fed
Meta Description: MSCI's global stock index hits a low in July 2020 as U.S. inflation data hints at Fed rate hike. Market reactions and forecasts discussed.
URL: https://financedigest.com/hot-u-s-inflation-data-reignites-global-selloffhtml

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By Marc Jones

LONDON (Reuters) – MSCI’s global stock index lurched to a July 2020 low and dollar and bond market borrowing costs rose on Thursday as another red hot U.S. [inflation reading cemented bets of another large Fed rate hike next](https://www.financedigest.com/britains-next-sees-lower-clothing-inflation-shares-dip-on-cautious-outlook.html "Britain’s Next sees lower clothing inflation, shares dip on cautious outlook") month.

Traders flipped straight into selloff mode as the U.S Labor Department’s consumer prices index (CPI) report showed [headline CPI gaining at an annual pace of 8.2% and core](https://www.financedigest.com/boes-mann-falling-headline-inflation-high-core-make-policy-difficult.html "BoE’s Mann: Falling headline inflation, high core, make policy difficult") CPI, which eliminates volatile food and fuel prices, at a higher than forecast 6.6%.

It sent what had been higher Wall Street futures plunging by more than 2% as the market opened and left the S&P 500, European [stocks and MSCI’s main world](https://www.financedigest.com/world-stocks-cling-to-upbeat-mood-dollar-stalls.html "World stocks cling to upbeat mood, dollar stalls") index all facing a seventh straight day in the red. \[.N\]\[.EU\]

[Global markets have suffered](https://www.financedigest.com/will-global-commodities-suffer-as-a-result-of-brexit-the-experts-at-easymarkets-think-not.html "WILL GLOBAL COMMODITIES SUFFER AS A RESULT OF BREXIT? THE EXPERTS AT EASYMARKETS THINK NOT!") a torrid few weeks but the U.S. CPI [data cut to the heart of worries that major economies will need to be pushed firmly into recession for inflation](https://www.financedigest.com/oil-jumps-on-lower-than-expected-us-inflation-data.html "Oil jumps on lower-than-expected US inflation data") to be brought into line.

The seemingly-unstoppable [dollar sparked into life pushing the euro](https://www.financedigest.com/dollar-trims-gains-vs-euro-after-u-s-inflation-data.html "Dollar trims gains vs euro after U.S. inflation data"), yen and Swiss franc back down \[/FRX\] although sterling was still up after a report that the [British government was discussing scrapping more of its tax](https://www.financedigest.com/shell-to-evaluate-25-billion-pound-british-investments-after-windfall-tax.html "Shell to ‘evaluate’ 25 billion pound British investments after windfall tax") cuts laid out just last month.

Economists said the [Fed is now expected to increase rates](https://www.financedigest.com/wage-data-dents-dollar-recovery-before-fed-rate-decision.html "Wage data dents dollar recovery before Fed rate decision"), which currently stand at 3.125%, by at least 75 bps next month and to continue raising them into next year. Markets show [investors now expect](https://www.financedigest.com/wave-of-lawsuits-over-ftx-expected-but-investors-will-face-legal-hurdles.html "‘Wave’ of lawsuits over FTX expected, but investors will face legal hurdles") U.S. [rates to peak](https://www.financedigest.com/bank-of-england-raises-rates-to-3-5-says-inflation-has-peaked.html "Bank of England raises rates to 3.5%, says inflation has peaked") at around 4.85% in March, compared with a peak of 4.65% in May that was priced in right before the data.

After today’s inflation report, there can’t be anyone left in the [market who believes the Fed](https://www.financedigest.com/markets-start-signalling-fed-may-be-going-too-far-amundi.html "Markets start signalling Fed may be going too far – Amundi") can raise rates by anything less than 75 bps at the November meeting,” Seema Shah, Chief Global Strategist at Principal Asset Management said.

If this kind of upside surprise is repeated next month, we could be facing a fifth consecutive 0.75% [hike in December with policy rates blowing](https://www.financedigest.com/sp-warns-of-possible-economic-blow-hit-to-japan-inc-from-boj-rate-hike.html "S&P warns of possible economic blow, hit to Japan Inc from BOJ rate hike") through the Fed’s peak rate forecast before this year is over.

In the bond markets, borrowing [costs were rising](https://www.financedigest.com/suedzucker-quarterly-profits-surge-73-5-despite-cost-rise.html "Suedzucker quarterly profits surge 73.5% despite cost rise") again.

The U.S. 10-year benchmark [yield jumped](https://www.financedigest.com/stocks-jump-as-treasury-yields-ease-and-oil-prices-sell-off.html "Stocks jump as Treasury yields ease and oil prices sell off") up past 4% again having been at 3.89%. Two-year rates [hit 4.5% while German](https://www.financedigest.com/cash-loving-germans-fret-over-exploding-atms-as-cross-border-crime-wave-hits.html "Cash-loving Germans fret over exploding ATMs as cross-border crime wave hits") 10-year bond yields, rose to 2.304%, compared with 2.229% right before the U.S. data.

Earlier [European data had confirmed German harmonised inflation](https://www.financedigest.com/european-shares-set-for-weekly-gain-on-u-s-inflation-outlook.html "European shares set for weekly gain on U.S. inflation outlook") was 10.9% y/y in September and almost 10% in Sweden too.

Minutes of the Fed’s latest policy meeting released on Wednesday had showed many [officials “emphasized the cost](https://www.financedigest.com/australias-nuclear-submarine-plan-to-cost-up-to-245-billion-by-2055-defence-official.html "Australia’s nuclear submarine plan to cost up to 5 billion by 2055 -defence official") of taking too little action to bring down inflation likely outweighed the cost of taking too much action.

Several policymakers did stress, however, that it would be important to “calibrate” the pace of further [rate hikes](https://www.financedigest.com/uk-economys-unexpected-bounce-spurs-more-boe-rate-hike-talk.html "UK economy’s unexpected bounce spurs more BoE rate hike talk") to reduce the risk of “significant adverse effects” on the economy.

Treasury yields were choppy in Europe. with most of the equivalent European yields down a touch too.

Markets lay 90% odds for another 75 basis-point Fed [rate hike](https://www.financedigest.com/dollar-firms-after-u-s-labor-data-suggests-more-rate-hikes.html "Dollar firms after U.S. labor data suggests more rate hikes") in November, versus 10% probability of a half-point bump.

CONCERNED

In Asia, widespread equity market weakness had [seen Japan’s Nikkei slip 0.6% and South Korea’s Kospi tumble 1.8% overnight as news that Taiwanese chipmaking giant TSMC was seeing demand drop and was cutting its investment budget](https://www.financedigest.com/icrc-to-cut-some-1500-jobs-as-humanitarian-budgets-seen-sliding.html "ICRC to cut some 1,500 jobs as humanitarian budgets seen sliding") by at least 10% hit the wider region’s tech sector.

[Hong Kong’s](https://www.financedigest.com/citadel-accelerates-hiring-push-in-hong-kong-and-london.html "Citadel accelerates hiring push in Hong Kong and London") Hang Seng dropped 1.9% and mainland Chinese blue chips lost 0.3% to leave MSCI’s index of Asia-Pacific shares close to 2 1/2-year lows.

The risk of an over-tightening episode and some mishap in financial markets is higher than I can remember,” said Tom Nash, a fixed income portfolio manager at UBS [Asset](https://www.financedigest.com/britains-post-brexit-asset-management-revamp-eyes-liquidity-tokenisation.html "Britain’s post-Brexit asset management revamp eyes liquidity, tokenisation") Management in Sydney.

HEROIC

The dollar index, which gauges the greenback against six major rivals, jumped over 0.5% to 113.65 after the CPI data.

The U.S. currency [hit a fresh](https://www.financedigest.com/londons-ftse-100-hits-fresh-record-high-as-telecoms-surge.html "London’s FTSE 100 hits fresh record high as telecoms surge") 24-year high of 147.2 yen and pushed the euro to a 2-week low. Sterling was still up after it had roared up almost 1.5% to $1.1263 on the reports of possible [tax cut](https://www.financedigest.com/uks-sunak-under-fire-over-cost-of-living-defends-his-tax-cut-plans.html "UK’s Sunak, under fire over cost of living, defends his tax cut plans") changes.

Benchmark 10-year gilt yields, which erupted after the UK government laid out [tax cutting plans](https://www.financedigest.com/uk-drops-plan-to-tax-sovereign-wealth-funds.html "UK drops plan to tax sovereign wealth funds") last month, had swung from a fresh 14-year peak at 4.632% to 4.25% in post CPI trading.

The [Bank of England has insisted that its emergency bond market](https://www.financedigest.com/market-stress-indicators-react-sharply-after-u-s-bank-failures.html "Market stress indicators react sharply after U.S. bank failures") support will expire on Friday as originally announced, countering media reports of continued aid if necessary.

BoE Governor Andrew Bailey had riled [markets on Tuesday by saying British pension funds](https://www.financedigest.com/explainer-why-european-money-market-funds-inflows-are-lagging-behind-the-u-s-torrent.html "Explainer-Why European money market funds inflows are lagging behind the U.S. torrent?") and other investors hit hard by a slump in bond prices had until that deadline to fix their problems.

I would say it’s heroic to say the risk of some sort of systemic [problem has been extinguished because these are big](https://www.financedigest.com/with-big-bets-on-musk-these-funds-may-have-a-tesla-problem-in-23.html "With big bets on Musk, these funds may have a Tesla problem in ’23") moves and we don’t now how much deleveraging needs to be done,” Janus Henderson’s Paul O’Connor said. “Markets still feel very dysfunctional”.

Meanwhile, crude oil markets regained their [footing following a 2% slide on Wednesday amid worries](https://www.financedigest.com/44-of-uk-households-are-worried-theyll-have-to-foot-the-bill-for-net-zero.html "44% of UK Households are Worried They’ll Have to Foot the Bill for Net Zero") over demand.

Brent crude futures bounced 23 cents, or 0.25%, to $92.69 a barrel, while U.S. West Texas Intermediate crude was up 21 cents, or 0.2%, at $87.44 a barrel. \[O/R\]

Last week, the producer group comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia [pushed prices higher](https://www.financedigest.com/powells-warning-on-higher-u-s-rates-pushes-dollar-to-3-mth-high.html "Powell’s warning on higher U.S. rates pushes dollar to 3-mth high") when it agreed to cut supply by 2 million barrels per day (bpd).

(Additional reporting by Kevin Buckland in Tokyo, Editing by Kirsten Donovan and Alexander Smith)


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