Stock market crashes as inflation spooks investors. Factors dragging equities lower

The Indian stock market opened deep in the red on Wednesday with the Sensex down 757.37 points, or 1.25 percent, at 59813.71 at 9:17am, and the Nifty shedding 220.80 points, or 1.22 percent, to 17849.20, following negative global cues. About 475 shares have advanced, 1,667 shares declined, and 78 shares are unchanged.

All sectors are trading in the red with the IT, financials, auto and realty indices down 1-3 percent each. The BSE midcap and smallcap indices are down over a percent each.

“The US markets ended sharply lower on Tuesday after the latest inflation data in the world’s largest economy showed a less-than-expected moderation in the price-rise index that’s at a multi-decade high. Asian markets are trading in the red on Wednesday as a white-hot US inflation report dashed hopes for a peak in inflation and fuelled interest rate hike bets,” said Mohit Nigam, Head of PMS at Hem Securities.

“On the technical front, the key resistance level for Nifty50 is 18,000 and on the downside 17,500 can act as strong support. Key resistance and support levels for Bank Nifty are 40,500 and 39,500 respectively,” he added.

US inflation soars

US consumer prices unexpectedly rose in August and underlying inflation accelerated amid rising costs for rents and healthcare, giving the Federal Reserve the ammo to deliver a third 75-basis-point interest rate hike next Wednesday.

The consumer price index edged up 0.1 percent last month after staying unchanged in July. Though consumers got some relief from a 10.6 percent decline in gasoline prices, they had to dig deeper to pay for food, rent, healthcare, electricity and natural gas. Food prices rose 0.8 percent, with the cost of food consumed at home increasing 0.7 percent. Food prices surged 11.4 percent over the last year, the largest 12-month increase since May 1979.

Economists polled by Reuters had forecast the CPI dipping 0.1 percent. In the 12 months through August, the CPI increased 8.3 percent. That was a deceleration from 8.5 percent rise in July and 9.1 percent in June, which was the biggest gain since November 1981. Inflation has overshot the Fed’s 2 percent target.

Global markets sell-off

A broad sell-off sent US stocks reeling on Tuesday after a hotter-than-expected inflation report dashed hopes that the Federal Reserve could relent and scale back its policy tightening in the coming months. The Dow Jones Industrial Average fell 1,276.37 points, or 3.94 percent, to 31,104.97, the S&P 500 lost 177.72 points, or 4.32 percent, to 3,932.69 and the Nasdaq Composite dropped 632.84 points, or 5.16 percent, to 11,633.57.

Among the Asian names, Nikkei and Hang Seng are down over 2 percent each, while Kospi and Shanghai shed 1 percent.

At 9:30am, SGX Nifty is down 265 points and is trading at 17,827 level.

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Fed seen getting more aggressive as inflation roars

The Federal Reserve is likely to raise the US borrowing costs faster and further than previously expected after data on Tuesday showed underlying inflation broadening out, rather than cooling off as expected. Overall consumer prices climbed 0.1 percent last month from July – economists had expected a decline – and gained 8.3 percent from the year-earlier period, the US Labor Department reported.

The data also showed accelerating inflation in services and a particularly worrisome rise in the cost of rent, which tends to be sticky from one month to the next, making the Fed’s inflation-fighting job all the more difficult.

Oil prices creep higher

Oil prices inched higher in early trade on Wednesday as OPEC stuck to forecasts for robust global fuel demand growth, offsetting concerns of another US. Federal Reserve interest rate hike next week after consumer prices unexpectedly rose in August. Brent crude futures rose 3 cents to $93.20 a barrel by 0116 GMT, after settling 0.9 percent lower on Tuesday. US West Texas Intermediate crude was at $87.41 a barrel, up 10 cents, or 0.1 percent.

All sectors in the red

All sectoral indices are trading in the red with the IT index down over 3 percent, followed by financials, IT, realty, capital goods and metal, which shed over a percent each. The midcap and smallcap indices are down 0.5 percent each.

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