U.S. Stock futures slid on Wednesday after June inflation data came in hotter-than-expected, contributing to growing fears that the Federal Reserve will get more aggressive in its fight to tame rising prices.
Futures tied Dow Jones Industrial Average dropped 300 points, or 0.98%. S&P 500 futures fell 1.27% and Nasdaq 100 futures lost 1.78%.
“There’s no spinning this, other than the Fed has to get more aggressive near term and crush demand. that cements a recession now, ” said Liz Ann Sonders of Charles Schwab. “I think a recession is an inevitability.”
The consumer price index rose 9.1% on a year-over-year basis in June, coming in even higher than May’s 8.6% reading, which was the biggest increase since 1981. Economists surveyed by Dow Jones’ had anticipated an 8.8% print.
Core CPI, which excludes food and energy prices, came in at 5.9% and above the 5.7% estimate.
“The market is anticipating that June will be the new peak,” said Lindsey Bell, Ally’s chief markets and money strategist. “The reading is likely to confirm what the jobs report on Friday told us – that the Fed will stick to their aggressive rate tightening timeline.”
The hot reading could prompt the central bank to hike another 75 basis points during this month’s meeting or raise expectations of an even larger increase to tame surging prices. Last month, the Fed raised its benchmark interest rates three-quarters of a percentage point to a range of 1.5%-1.75% in its most aggressive hike since 1994.
“The core is chugging along at a frightening clip,” said Michael Schumacher at Wells Fargo.
Fed funds futures are now pricing in an 81 basis points rate hike for July. That would indicate that some in the market expect a rate hike of more than 75 basis points, and 100 could happen.
“With core running this strong, the Fed can’t ignore that. This is a bad number,” he said.
Treasury yields and the dollar surged on the news. The 10-year rate added 7 basis points to trade at 3.03%, while the 2-year jumped 11 basis points to 3.16% as the euro fell below parity with the U.S. dollar.
Along with inflation data, investors on Wednesday continued to monitor second-quarter earnings for clues into the health of U.S. companies. Delta Air Lines shares slipped 3.5% in premarket trading after posting mixed results. Major banks including JPMorgan and Morgan Stanley are slated to post results Thursday.
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