The Consumer Price Index (CPI) recently released in August gave the financial markets a major scare. The data showed inflation was down to 8.3% from the 8.5% recorded in July. Although Wall Street analysts were expecting a drop, the consensus was that inflation would drop to 8%.
The Feds should no longer change their aggressive attitude in the fight against inflation. Consequently, with the CPI being higher than expected, analysts believe that a third consecutive interest rate hike of 75 basis points (bps) is virtually confirmed. Consequently, ahead of the Federal Reserve meeting next week, the stock and crypto markets reacted, nosediving and wiping out billions of dollars.
Stocks fall as markets scare
The tech-heavy Nasdaq 100 index plunged 5.5%, the biggest since falling more than 12% in March 2020. Meanwhile, the S&P 500 fell 4.4%, the most since June 2020.
America’s billionaires saw their fortunes plummet in what was the ninth-worst daily loss of all time. Jeff Bezos’ wealth has shrunk by $9.8 billion. Elon Musk lost $8.4 billion, while Mark Zuckerberg, Larry Page, Sergey Brin and Steve Ballmer saw their wealth shrink by more than $4 billion. Meanwhile, Warren Buffett and Bill Gates lost $3.4 billion and $2.8 billion, respectively.
This year has seen many tough days for markets and billionaire wealth. After an eight-minute speech by Federal Reserve Chairman Jerome Powell last month, the same group of American billionaires lost $78 billion in one day.
Crypto Market Loses $69 Billion
The cryptocurrency market was also not spared, losing over $69 billion after the CPI data came out. The total market capitalization of digital assets fell by more than 8.4%, from around $1.070 billion to $987 billion.
Bitcoin was down more than 10% following a rally last week that saw the top digital asset rise above $22,000 from a low of $19,000. The drop in value of BTC took it below the $20,000 mark.
Meanwhile, Ethereum, which is expected to complete its merger this week, also fell more than 7% and continued to trade below $1,600. Despite the decline, social activity around ETH, which has been increasing over the past three months, peaked ahead of the merger’s completion.
According to Lunar Crush, Ethereum had nearly 55 billion social engagements from over 23 million mentions and over 160,000 contributors in the past three months. The majority of cryptocurrencies have seen significant liquidations, according to Coinglass statistics.
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Market pricing up 75 bps
The drop in stocks and crypto indicates that Fed Financial Market prices are up 75 basis points. The Federal Reserve should maintain its hawkishness in the fight against inflation. This expectation caused a second consecutive day of decline in the gauge of MSCI stocks around the world.
The MSCI gauge measures the performance of stocks in 23 markets and developed countries. The index recorded its largest one-day percentage decline in three months after the release of inflation data. Therefore, investors are expecting a rate hike of at least 75 basis points at the Fed’s monetary policy meeting next week. According to the Fed’s CME monitoring tool, an increase in the 100 BPS upside is also a strong possibility.
Meanwhile, Fed forecasts and concerns about the persistence of inflation kept US Treasury yields higher. After hitting a 15-year high at 3.834%, the two-year US Treasury yield, which generally moves in line with interest rate expectations, rose 2.4 basis points to 3.780%.
The closely watched U.S. Treasury yield curve measures the difference between two- and 10-year Treasury yields. This is a reliable indicator of recession and an indicator of economic expectations, and it was at -36.8 basis points.
Overall poor stock performance continued yesterday. The Dow Jones Industrial Average fell 64.11 points (0.21%). The Nasdaq Composite gained 24.49 points (0.21%) to close at 11,658.07. Meanwhile, the S&P 500 fell 1.07 points (0.03%), closing at 3,931.62.
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Do you think a 75 bps rise is a certainty after the recently released CPI data? Let us know your thoughts in the comments below.