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FollowingCore Points
The probability of a Federal Reserve raising interest rates soared after the release of inflation data
Crude oil prices fell back after a turbulent trading week
Major indices rose, breaking four consecutive days of decline
Major stock indexes such as the Dow Jones, S & P 500 and Nasdaq Composite Index rose about 1% on Friday, ending a previous four-consecutive trading day of decline.
August inflation data showed that the consumer price index (CPI) rose 0.4% month-on-month and 3.4% year-on-year, which was higher than the July data. Core inflation (excluding volatile food and energy prices) increased by 0.3% month-on-month, exceeding market expectations of 0.2%.
Currently, the probability that the market expects the Fed to raise interest rates by 25 basis points at next week's meeting has risen to 87%.
Stocks closed higher as inflation data boosted interest rate hikes expectations
U.S. stocks closed higher on Friday after the August consumer price index (CPI) was released. Data showed inflation was higher than forecast, raising the possibility that the Fed would take action next week.
The S & P 500 rose 0.86%, the Nasdaq rose 0.96%, and the Dow Jones Industrial Average rose 0.98%, an increase of about 509 points. Despite Friday's rebound, the three major benchmark indices overall remained in a downward trend this week due to four consecutive trading days of declines.
After the release of inflation data, the probability of the Federal Reserve raising interest rates rises sharply
Core inflation data was stronger than expected, prompting market participants to significantly increase their expectations for monetary policy tightening. According to CME's FedWatch tool, traders now expect an 87% probability that the Fed will raise interest rates by 25 basis points at next week's FOMC meeting.
This probability is much higher than 72% in the previous few days and 50% a week ago. Market strategists pointed out that reduced uncertainty surrounding Fed policies contributed to a surge in afternoon buying.
Will Rhind, CEO of GraniteShares, commented: "We have observed this pattern repeatedly: macroeconomic developments trigger selling pressure, but when market participants recognize the opportunity to buy stocks at a discount, this pressure often reverses quickly."
Treasury yields turned higher after falling early in the CPI announcement. The yield on the 10-year Treasury note closed just below 5%.
Crude oil prices fall back after a turbulent trading week
Energy markets have experienced violent fluctuations this week, with Brent crude oil briefly exceeding US$108 a barrel and diesel prices hitting a record high of US$6 a gallon. These price increases exacerbated inflation concerns throughout the trading period.
However, energy markets eased on Friday and oil prices cooled. WTI crude oil fell back to $100 a barrel. Brent crude oil futures also slowed their upward trend.
Saudi Arabia's Ministry of Energy announced a temporary suspension of flow through the East-West Pipeline. Despite the news, oil futures were basically flat on the trading day.
Although inflation has shown a downward trend since May, its level is still significantly above the Fed's 2% target.
Market observers pointed out that profits in the technology sector provide strong support for the stock market. Rind emphasized that the market is "fundamentally sound, especially in terms of earnings performance, with technology stocks particularly outstanding performance."
Next week's Fed policy decision will be the next key catalyst to influence the direction of stocks.
