THE NAGA GROUP AG Annual inflation in the United States rose by 7.5%, therefore increasing the possibility of more than 4 rate hikes from the Federal Reserves that were previously priced in.
The news marks the biggest annual inflation surge since February 1982
Consumer prices rose also in the short term, according to the data reported by the Bureau of Labor Statistics (BLS), climbing 0.6% in January from December. The market was looking for a MoM change of 0.4% and 7.2% YoY.
Excluding gas and grocery costs, the consumer price index (CPI) rose by 6%, more than the analyst consensus of 5.9%. CPI rates also rose faster than expected on a monthly basis, with headline and core CPI climbing 0.6%, compared to the expected 0.4% surge.
The markets reacted rapidly once the numbers were out
As expected, equities, bonds, and cryptocurrencies fell sharply as investors continue to search for clues on how the Fed will respond to ever-rising inflation figures. Price action from recent days may have suggested that investors were looking for a lower-than-expected CPI figure, hence today's sharp reaction lower in asset prices.
The NASDAQ 100 index ($NAS100) opened nearly 2% lower in response to the hot CPI data, before erasing a portion of losses to trade around 1.5% in the red. If the bond yields continue to rise in the coming days, it is likely that we will see another push lower with prior lows below the 14,000 handle acting as a target for sellers.
Similarly, Bitcoin's ($BTC/USD) price also declined following the report with the world's largest digital asset closing nearly 2.7% lower in the hour when CPI figures were released. Since Bitcoin is highly correlated with the Nasdaq index and tech stocks, investors may see another leg lower given the sector's high dependency on interest rates.
However, both assets rebounded quickly, followed by a heavy volume of dip-buyers shortly after the sharp decline. Let's see where the markets end up by the closing of today's market session.
It may be a bigger problem than just another market correction
It is important to note that the rising inflation is not only an economic problem, but also a political one given the surge in prices of food, gas, and rents.
Bond yields rose significantly, with the benchmark 10-year Treasury yield climbing to 2%, its highest level in nearly three years. After the report, the possibility for another 0.5% rate hike in March by the Federal Reserve rose to 44.3%, nearly doubling from the previous 25%, Bloomberg data shows.
"With another surprise jump in inflation in January, markets continue to be concerned about an aggressive Fed. While things may start getting better from here, market anxiety about potential Fed overtightening won't go away until there are clear signs inflation is coming under control," said Barry Gilbert, asset allocation strategist at LPL Financial.
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NAGA Group AG published this content on 10 February 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 February 2022 11:02:02 UTC.
