US open: Stocks tumble after hot inflation

US futures

Dow futures -1.5% at 28750

S&P futures -1.9% at 3500

Nasdaq futures -2.7% at 10480

In Europe

FTSE -1.4% at 6726

Dax -1.24% at 12043

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100 basis point hike?

US stocks are tanking lower following the US inflation report. Stocks are falling to fresh 2-year lows in a strong reaction to hotter-than-forecast data.

US CPI cooled by a less than expected to 8.2% YoY, down from 8.5%, but short of the 8.1% forecast. Meanwhile, core CPI, which strips out the more volatile items such as food and fuel, rose by more than expected to 6.6% YoY in September, up from 6.3% in August and ahead of the 6.5%.

The data shows that inflation is stickier than initially feared, which means that the Fed will need to act more aggressively to hike interest rates and then keep them higher for longer to tame inflation. Following the release of the data, the market now considers a 75-basis point rate hike in July a 95% probability and has started to price in a 100-basis point hike.

Higher rates for longer make engineering a soft landing an almost impossible job. Recession fears were running high even before the inflation print. The market is reacting as would be expected to hot inflation and rising recession fears; stocks are tanking, and the USD is resuming its rally.

Corporate news:

Walgreens boots reported better than expected quarterly earnings. Higher prices and a strong launch for its newly launched consumer health business helped offset slowing COVID vaccine demand.

Delta will also be in focus after solid results. The airline posted net income of $695million or $1.08 per share on record revenue of $14 billion, after a surge in summer travel.

Where next for S&P500?

The S&P500 continues to trade in a falling channel, in place since mid-August. The move below 3600 round number and the RSI below 50 keeps seller’s hopeful of further downside. Support can be seen at 3490 the lower band of the falling channel, a break below here opens the door to 3390 the February 2020 high. On the flip side buyers will be looking for a move above 3640 the June 16 low to expose the 20 sma at 3707, which is also the upper band of the falling channel.

FX markets – USD rises, GBP rises again

The USD is charging higher after the inflation print. As hawkish Fed bets rise, the USD extends gains. USD/JPY has risen above 147, bringing the 147.90 September 1998 target into play.

EUR/USD is falling on USD strength and despite German inflation confirming the record high level of 10%. The hot inflation level will mount pressure on the ECB to hike rates by 75 basis points in the November meeting.

GBPUSD is rising for a second straight day. Comments yesterday from BoE’s chief economist hinting at a large rate hike in November are supporting the sterling. Investors continue to keep a close eye on the gilts market, which has seen significant volatility since the Chancellor. Optimism is building on rumours that the UK government could scrap more of its mini-budget.

GBP/USD +1% at 1.1210

EUR/USD -0.4% at 0.9660

Oil steadies after three days of losses

Oil prices are holding steady on Thursday after three days of declines. Oil prices have fallen over 5% so far this week after OPEC lowered its demand forecast for this year and next. The IEA also downgraded its oil demand growth this year to 1.9 million barrels.

Recession fears are building after the IMF warned about global growth and interest rates are set to keep rising. COVID cases in China are another headwind.

However, the OPEC+ supply cut announced last week is helping to cap losses in the oil price.

WTI crude trades -0.6% at $88.70

Brent trades -0.6% at $94.50

Learn more about trading oil here.

Looking ahead

16:00 EIA oil stockpile storage