Sell-Off Deepens as Inflation Haunts Markets

Traders bought the USD on Friday and Monday, pushing the dollar index to the current cycle highs near 105, resulting in a slide of EURUSD back to 1.0450. Moreover, the USDJPY pair pushed to new cycle highs below 135, while cable fell nearly 1% following weak UK GDP data.

Inflation not slowing

The Consumer Price Index (CPI) in the United States surged to a new multi-decade high of 8.6% on an annual basis in May, according to figures released on Friday. This result exceeded the market’s anticipation of 8.3 percent, causing investors to panic. 

“In the space of a few days, markets have gone from optimism that inflation might be on the cusp of plateauing to rising apprehension that we could not only see higher prices but that prices might well remain higher for a lot longer than originally thought,” wrote CMC Markets Chief Markets Analyst Michael Hewson in a note on Monday.

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As a result, the SP500 Index dropped about 3% last week, closing at 3,900. Losses continued today, with all three major US equity indices losing more than 2% during the London session, dropping to new cycle lows. EU bourses were also weaker, but not that much. 

At the same time, US yields hit new cycle highs, with the 2-year yield soaring to 3.2% for the first time since January 2008, while the 10-year yield rose to the highest since 2011, touching 3.25%. As a result, the yield curve has flattened further, implying an incoming recession.

Recession fears

Additionally, the Financial Times reported over the weekend that 70% of experts questioned believe the US economy would enter recession next year.

Commodities took a hit, undermined by soaring yields and a strengthening greenback. Silver completely erased Friday’s gains and dropped to 21.50 USD; gold was down 1% and traded near 1,855 USD, while copper plunged 1.5% to the lowest level in a month.

Source: https://www.axiory.com/analytics/market-news/sell-off-deepens-as-inflation-haunts-markets