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Investors are generally exercising caution ahead of the PPI and CPI data release and this conservative stance is reflected in the closing performance of the tech-heavy Nasdaq Composite.
Many major financial market indicators are showing signs of frailty ahead of the crucial inflation data that are billed to be released this week. The 2-year United States Treasury yield recorded a plunge, showcasing how much of an impact the consistent short-term economic decisions from the Federal Reserve have on it.
The Treasury Yield recorded a 2 basis point drop to 4.2953% while the 10-year Treasury was down by a basis point to 3.925% at the time of writing. These yields are on a tipping edge, and signs of health will return back when the Producer Price Index (PPI) data scheduled for Wednesday gives an indication that the hawkish moves from the Feds are actually yielding good dividends.
The PPI is a good inflation indicator as it is focused on measuring the changes in the wholesale price of goods. According to the economists surveyed by Dow Jones, the PPI will trend higher again this time. This inflation growth has been a major source of concern for Fed officials, many of whom have expressed a high likelihood of increasing interest rates until the figures are generally tapered down.
The major inflation indicator, the Consumer Price Index (CPI) is slated for October 13, and insights from there, coupled with the PPI will give a better insight into whether the Federal Open Market Committee (FOMC) will maintain the 75 basis points interest rate hike or higher or whether the rate will be reduced in general.
There has been consistency in the Fed rate hikes this year and inflation as of August was pegged at 8.3%, a level that is significantly higher than the projected healthy range of 2-4%. Alongside the sentiments shared by other Fed officials, the Federal Reserve Chairman Jerome Powell is also committed to tapering down the inflation growth.
Broad-Based Market Reaction Ahead of Inflation Data
Investors are generally exercising caution ahead of the PPI and CPI data release and this conservative stance is reflected in the closing performance of the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) which was down 1.10% to 10,426.19.
The S&P 500 Index (INDEXSP: .INX) also recorded a marginal plunge of 0.65% to 3,588.84 while the Dow Jones Industrial Average (INDEXDJX: .DJI) managed to stay in the green, inching a 0.12% growth to 29,239.19
With the current outlook in the broader financial market, uncertainty and fear are what are characterizing investors’ approach to investments and this is bound to keep shaping the erratic volatility the ecosystem is witnessing at present.
Investors are losing faith in the Fed’s approach to taming inflation and many have expressed concerns about the likelihood of the economy slipping into a recession with the ongoing aggressive interest rate hike. While the fear of recession is rife, the drivers of the economy believe inflation is more damning and are stretching the economy’s limits to ensure the latter is controlled as best as possible.