Today’s U.S. Producer Price Data Don’t Give Much Chance for Markets to Rebound

U.S. index futures are showing shy rebounds after yesterday’s sharp losses in the wake of disappointment caused by still-elevated inflation data. Across the most important macro publications, the U.S. Producer Price Index for August will be released at the market open. Following the logic of yesterday’s event, markets are poised for another turnaround as soon as the data released, as economists are expecting producer prices declining 0.1% MoM, with YoY rates expected at 8.7%.

Yesterday, U.S. markets dropped to their lowest levels since June 2020 due to a higher than expected inflation rate published for the month of July. Both the Dow Jones and S&P 500 posted their biggest one-day loss in more than 2 years, and the declines in the Dow, S&P 500, and Nasdaq were among the top seven largest of all time. Headline inflation was at a slightly above consensus 8.3% YoY. The big issue was Core CPI, inflation ex food and energy and the number which was expected to come out strong, which in reality increased more than expected, rising to 6.3% YoY in July from 5.9% in June. As a result, traders have priced in a 75 bps rate hike soon and with some suggesting the Fed may go for a full 100 bps in its meeting next week.

U.S. Treasury yields immediately spiked, thereby affecting yield sensitive stocks, with many technology stocks taking the hit. Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Google-Alphabet (GOOGL), and Tesla (TSLA) dropped around or deeper than 4%. However, Twitter (TWTR) was among the few stocks to post modest gains after shareholders approved Elon Musk’s proposed $44 billion buyout. This means a trial is expected to take place next month. Shares of big industrial companies, including Boeing (BA), and major retailers such as Home Depot (HD), posted significant losses. Shares of airlines, cruise lines, hotels, and other travel-related companies all nosedived. Even shares of consumer staples, a traditional safety play in a sinking market, declined.

In Europe, the bad news also continued. ZEW Investor expectations for Germany came out lower by 6.6 points to minus 61.9, its lowest level since October 2008. And in France, the government now expects GDP to expand only 1% in 2023 instead of the 1.4% it forecast in July due to the impact of rising energy prices on businesses and households.

Today, European markets are trading mostly lower. As of 12:45 p.m. CET, the Pan-European Stoxx 600 Index fell 0.38%, British FTSE 100 dropped by 0.72% while the French CAC 40 Index declined by 0.05%, and German DAX went down 0.31%. Poor macro data was again behind the worsening sentiment. In particular, industrial production in the Eurozone dropped 2.3% MoM in July, following a revised 1.1% increase in June. However, annual inflation rate in the UK fell to 9.9% in August from 10.1% in July.

Asian markets also traded with pessimism earlier today. Japan’s Nikkei 225 plummeted 2.78%, Hong Kong’s Hang Seng Index nosedived 2.48% and China’s Shanghai Composite Index fell 0.8%. Australia’s S&P/ASX 200 fell 2.6%, while India’s S&P BSE Sensex eased by 0.2%. Manufacturing output in Hong Kong climbed by 2.7% YoY in Q2. The annual wholesale price inflation rate in India fell to 12.4% in August from 13.9% in July, while industrial production in Japan increased 0.8% MoM in July. Meanwhile, Australian new home sales dipped 16.0% MoM in August.