Even after the market crashes, investors are still making two implausible assumptions about the next six months, this economist says

This is not the first time that inflation numbers have surprised the market. The bad news was the S&P 500 SPX,
+ 0.55%
It saw the biggest one-day drop in two years, dropping 4.2%. The good news is if you check your 401(k) it will only go back to last week’s levels, futures are holding in the early hours of Wednesday.

One month of data is only one month of data, and there are still believers that in the not-too-distant future the Fed will halt its rate hike campaign.

said Paul Ashworth, chief US economist at Capital Economics. “The axis is not dead yet.”

But what a rotten month of data. The first surprise today was that core CPI was hotter than expected and two ways to split the numbers by the regional feds had more bad news. The Atlanta Fed’s constant CPI gauge rose to 6.1% year over year from 5.8%. Remember, this is a basket of price items that are supposed to change slowly (think, lists). Meanwhile, the average federal consumer price index in Cleveland accelerated to 6.7% from 6.3%.

If you’re using the old rule that the Fed must raise interest rates above the base rate of inflation – and remember, this particular post Found on the Federal Reserve website! So the market is still massively underestimating how high rates should go. Even after Tuesday’s inflation surprise, Fed Fund futures are pointing to a final rate around 4.25%.

Anatole Kalitsky, Chairman and Chief Economist at Gavekal, calculates that even if price increases were to stop completely for the time being, core inflation would still be 4.3% in December, and the key rate at 6.2%. If core inflation continues to rise at 0.56% as it did in August, it will reach 6.6% in December – and if inflation rises at the same rate as the average CPI over the past three months, that core figure will reach 7.2. % by December.

Many investors expect the US economy to plunge into a deep recession and the Federal Reserve to respond with panic and abandon its inflation target. Both things may eventually happen, but neither can be remotely believed within the next six months or so,” he says.

After all, the latest data on US activity is actually getting stronger. “With inflation and the labor market clearly continuing to overheat, the Fed will have no excuse to hint at a pause, let alone future easing,” Kalitsky says.

He expects the federal funds rate to be 4.5% by Christmas, core inflation to be around 6.5% and the US economy will show no evidence of recession.

“In this case, it’s hard to imagine why 10-year bond yields are trading at less than 4%, and it’s very plausible that the yield curve could shift, pushing long-term bond yields toward the 5% mark,” he said. He didn’t give a stock market forecast, but it suffices to say that if he’s right about bonds, stocks will see more days like Tuesday.

market

US stock futures ES00,
+ 0.34%

NQ00,
+ 0.56%
It was a touch higher. DXY dollar,
-0.26%
The yield on the 10-year Treasury TMUBMUSD10Y fell,
3.406%
It rose to 3.46%.

commotion

Producer prices fell 0.1% in August, slowing the annual rate to 8.7% from 9.8%.

UK experienced inflation Come in a touch shy of expectations, falling to 9.9% in August from 10.1%.

Bank of Japan Examination of the foreign exchange marketThe Nikkei newspaper reported, that it paves the way for a possible intervention to stop the slide in the decline of the Japanese yen USDJPY,
-1.34%.

Starbucks SBUX,
+ 5.85%
Revealing its three-year guidance, it predicted it would grow adjusted earnings between 15% and 20% over comparable store sales growth of between 7% and 9%. Starbucks previously forecast corporate sales growth of 4% to 5%. It said it would return $20 billion to shareholders over the next three years through share buybacks and dividends.

Google Alphabet,
+ 0.10%
lost google Most appeal the $4.3 billion fine imposed by the European Union on Android.

The International Energy Agency retained Oil demand growth forecast in 2023 unchanged, after lowering China’s expectations and raising them to the rest of the world. The European Union said it would raise some 140 billion euros in unexpected taxes on energy companies.

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The most important indicators

Here are the most active stock market indices as of 6 a.m. ET.

ribbon

Safety name

TSLA,
+ 3.55%

Tesla

GME,
-2.51%

Jim Stop

AMC,
-4.41%

AMC Entertainment

BBBY,
-1.79%

bed bath behind

NIO,
-1.98%

New

AAPL,
+ 1.67%

apple

Monkey,
-2.45%

Preferred AMC

NVDA,
-0.13%

nvidia

AMZN,
+ 0.50%

Amazon.com

ADTX,
-14.43%

Editxt

random readings

City C,
-0.59%
Looking for a new way to recruit junior bankers Make them work from the beach.

Up to 100 employees of the former official residence of the king They were warned that they might lose their jobs.

A Virginia man thought he won $600 in the lottery. In fact, it was a million dollars.

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