{"id":58675,"date":"2023-09-08T18:29:38","date_gmt":"2023-09-08T22:29:38","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/stock-markets-2023-run-may-hit-roadblock-after-augusts-energy-led-boost-to-u-s-cpi\/"},"modified":"2023-09-08T18:29:41","modified_gmt":"2023-09-08T22:29:41","slug":"stock-markets-2023-run-may-hit-roadblock-after-augusts-energy-led-boost-to-u-s-cpi","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=58675","title":{"rendered":"Stock market\u2019s 2023 run may hit roadblock after August\u2019s energy-led boost to U.S. CPI"},"content":{"rendered":"
\n

August was a hot month and it wasn\u2019t just about the weather. Financial markets are now bracing for what\u2019s likely to be a rebound in headline U.S. inflation next week, fueled by higher energy prices.<\/p>\n

\n

Barclays
\n BARC,
\n +0.18%<\/bg-quote>,<\/span>
\n BofA Securities
\n BAC,
\n +0.82%<\/bg-quote>,<\/span>
\n and TD Securities expect August\u2019s consumer price index to reflect a 0.6% monthly rise, up from the 0.2% monthly readings seen in July and in June. In addition, they put the annual CPI inflation rate at 3.6% or 3.7% for last month, which compares with the 3.2% and 3% figures reported respectively for the prior two months. <\/p>\n

While Federal Reserve policy makers and analysts are loath to read too much into one report, August\u2019s CPI has the potential to disrupt expectations that getting back to the central bank\u2019s 2% target will be easy. Inflation has instead been nudging back up since June, with the likely rebound in August being regarded as primarily driven by the energy sector. What now remains to be seen is how much longer energy prices will remain elevated and whether they\u2019ll begin to feed into narrower measures of inflation that matter most to the Fed.<\/p>\n

Read: <\/strong> Why financial markets may be unprepared for a fourth-quarter \u2018inflation surprise\u2019<\/p>\n

\u201cWe\u2019re going to see a spike in gas prices and other commodity prices driven by supply cuts, which means headline CPI goes back up,\u201d said Alex Pelle, a U.S. economist for Mizuho Securities in New York. Via phone on Friday, Pelle said that prospects for a hotter August CPI report have already been factored in by financial markets, with all three major U.S. stock indexes posting weekly losses. <\/p>\n

How investors react to next Wednesday\u2019s data will likely come down to whether the rebound in headline figures is seen as \u201ca one-off\u201d or something that gets repeated, and \u201cwhat that means for the bottoming off of inflation,\u201d Pelle said. \u201cThe equity market is going to have some trouble in the fourth quarter after a pretty impressive first half. Earnings expectations are still pretty high, but the macro-driven backdrop is challenging.\u201d <\/p>\n

Rising energy prices in August have already spilled into the month of September, with gasoline reaching the highest seasonal level in more than a decade this week. Voluntary production cuts by Saudi Arabia and Russia are a major contributing factor curtailing the supply of crude oil into year-end, and Goldman Sachs has warned that oil could climb above $100 a barrel.<\/p>\n

In financial markets, there\u2019s one group of traders which is telegraphing that the final mile of the road toward 2% inflation won\u2019t be smooth. <\/p>\n

Traders of derivatives-like instruments known as fixings anticipate that the next five CPI reports, including August\u2019s, will produce annual headline inflation rates above 3%. Though policy makers care more about core readings that strip out volatile food and energy prices, they\u2019re aware of how much headline figures can impact the public\u2019s expectations.<\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n<\/figure><\/div>\n

At BofA Securities, U.S. economist Stephen Juneau said August\u2019s CPI won\u2019t necessarily change his firm\u2019s view that inflation is likely to move lower next year and fall back to the Fed\u2019s target without the need for a recession. BofA Securities expects just one more Fed rate hike in November and will maintain that view if August\u2019s CPI report comes in as he expects, Juneau said via phone. <\/p>\n

After stripping out volatile food and energy items, BofA Securities, along with Barclays and TD Securities, expects August\u2019s core CPI readings to come in at 0.2% month-over-month \u2014 matching June and July\u2019s levels \u2014 and to fall to 4.3% on an annual basis. <\/p>\n

Based on core measures, August\u2019s report wouldn\u2019t \u201cchange the narrative all that much: Everything points to a moderation in price growth,\u201d Pelle said. \u201cThere\u2019s a reason why food and energy are typically excluded,\u201d and \u201cwe don\u2019t want to put too much stock into one month.\u201d<\/p>\n

On Friday, all three major U.S. stock indexes closed slightly higher, with the S&P 500 snapping a three-day losing streak. For the year, Dow industrials
\n DJIA,<\/span>
\n the S&P 500
\n SPX
\n and Nasdaq Composite
\n COMP
\n are respectively up by 4.3%, 16.1% and 31.5% \u2014 even after incurring weekly losses of 0.8%, 1.3%, and 1.9%.<\/p>\n

Meanwhile, Treasury yields finished mixed on Friday as fed funds futures traders priced in a 93% chance of no action by the Fed at its next policy meeting in less than two weeks, and a more-than-50% likelihood of the same for November and December \u2014 which would leave the Fed\u2019s main policy rate target between 5.25%-5.5%.<\/p>\n

\u201cThere is a risk that investors are too complacent about the inflation report,\u201d said Brian Jacobsen, chief economist at Annex Wealth Management in Elm Grove, Wis. \u201cWe might not get to 2% inflation as quickly as many hope.\u201d <\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

August was a hot month and it wasn\u2019t just about the weather. Financial markets are now bracing for what\u2019s likely to be a rebound in headline U.S. inflation next week, fueled by higher energy prices. Barclays BARC, +0.18%, BofA Securities BAC, +0.82%, and TD Securities expect August\u2019s consumer price index to reflect a 0.6% monthly […]<\/p>\n","protected":false},"author":1,"featured_media":58676,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-58675","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nStock market\u2019s 2023 run may hit roadblock after August\u2019s energy-led boost to U.S. CPI | iFintechWorld<\/title>\n<meta name=\"description\" content=\"August was a hot month and it wasn\u2019t just about the weather. 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