US Inflation Data Triggers Rate Hike Frenzy
The recent release of US inflation data has sparked significant market volatility. The US core Consumer Price Index (CPI) rose by 0.3% month-on-month in August, exceeding expectations of a 0.2% increase.
This unexpected figure led to a rapid shift in market interpretation, with traders now pricing in an over 90% probability of a Federal Reserve rate hike in September. Furthermore, expectations suggest three additional small hikes in the first half of next year.
Theoretically, this should be bearish for markets, but the near-full pricing of a September Fed hike has triggered a 'sell the rumor, buy the news' dynamic. This phenomenon saw long-term bond yields fall, boosting gold and US equities as investors front-ran the anticipated negative impact of the rate hike.