Stock market futures tumble after hot August inflation report

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A trader works, as Federal Reserve Chair Jerome Powell is seen delivering remarks on a screen, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S. May 4, 2022. REUTERS/Brendan McDermid

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  • U.S. consumer prices rise more than expected in August
  • Traders price in a small chance of 100 bps rate hike
  • Futures down: Dow 1.57%, S&P 2.06%, Nasdaq 2.66%

Sept 13 (Reuters) – Wall Street’s main indexes were set to open sharply lower on Tuesday after data showed monthly U.S. consumer prices unexpectedly rose in August, cementing bets of a third straight 75-basis-point rate hike from the Federal Reserve next week.

The Labor Department’s consumer price index (CPI) report showed monthly CPI rose 0.1% in August from July, against expectation of a 0.1% contraction. On a year-on-year basis it increased by 8.3%, while economists were anticipating a rise of 8.1%, according to a Reuters poll. read more

Excluding the volatile food and energy components, core CPI increased to 6.3% from 5.9% in July, putting further pressure on the Fed to continue on its rate-hike spree.

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“Bottom line, it only fortifies the Fed’s hand for a tougher inflation fight,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“The chance of the Fed moving back to less aggressive rate hikes over the next quarter is off the table”.

Policymakers last week emphasized their determination to keep raising rates until there is a sustained drop in inflation, which has been running at 40-year highs and above the Fed’s target of 2%.

Money markets now see a 85% chance of a 75-basis-point increase in rates and 15% chance of a whopping 100 bps hike by the Fed at its Sept. 20-21 meeting, while expecting rates to peak around 4.21% in March 2023.

The dollar , which has risen sharply this year in part due to expectations of aggressive rate hikes by the Fed, erased losses to turn positive.

Mega-cap technology stocks Apple Inc (AAPL.O) and Microsoft Corp (MSFT.O) fell about 2% each, while Tesla Inc (TSLA.O), Alphabet Inc (GOOGL.O), Inc (AMZN.O) and Meta Platforms Inc (META.O) dropped between 2.5% and 3.2% in premarket trading as Treasury yields moved higher.

The gap between yields on the two- and 10-year notes , often seen as an indicator of a looming recession, inverted further.

At 8:54 a.m. ET, Dow e-minis were down 507 points, or 1.57%, S&P 500 e-minis were down 84.75 points, or 2.06%, and Nasdaq 100 e-minis were down 338.5 points, or 2.66%.

The three major indexes logged their fourth consecutive session of gains on Monday as investors took advantage of a sharp drop in stock prices since mid-August that was triggered by concerns over soaring inflation and the impact of tighter monetary policy to curb it.

Eastman Chemical (EMN.N) slid 6.3% after the company forecast a downbeat third-quarter profit, citing demand slowdown in consumer durables market, higher costs and a hit from a stronger dollar.

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Reporting by Devik Jain in Bengaluru and Stephen Culp in New York; Editing by Shounak Dasgupta

Our Standards: The Thomson Reuters Trust Principles.