Market

Dow falls 200 points as lift from softer-than-expected inflation reading fades

U.S. stocks turned modestly lower Tuesday morning, giving up early gains inspired by a softer-than-expected August inflation reading as investors fretted that underlying price pressures may still prove persistent.

What’s happening

On Monday, the Dow jumped 262 points, or 0.8%, to end at 34869, ending a five-session losing run. The S&P 500 rose 10 points, or 0.2%, to 4468, while the Nasdaq Composite slipped 10 points, or 0.1%, to 15105.

What’s driving markets

The U.S. consumer-price index rose 0.3% in August, while the core reading, which excludes volatile food and energy prices, was up just 0.1%.

The CPI increased 5.3% year over year, compared with expectations for a 5.4% increase, and a rise of 5.5% for the year in July. The year-over-year change in core CPI fell back to 4% from 4.3% in July. Expectations were for a year-over-year pace of 4.2%.

The markets initially responded “as if this slightly weaker inflation data was going to change the time of the taper. I, for one, don’t expect this to be a game changer,” said Fawad Razaqzada, analyst at ThinkMarkets, in a note.

The Fed is still likely to announce a plan to begin tapering its bond purchases before the end of the year, he said, noting that the reading reflected declines in items such as airfares, accommodation and used cars, which Fed officials had already expected to fall back. Meanwhile, worries over more persistent factors driving up price pressures remain.

“Today’s report will vindicate Powell and the doves, but it is unlikely to alter the tapering timeline in our view,” said Aneta Markowska, chief economist at Jefferies, in a note.

“The inflation part of the taper test had already been met, and today’s report does not ‘uncheck; that box,” she said, noting that core prices are still well above the 2% path which more than qualifies as “substantial further progress” under the Fed’s criteria for beginning to scale back its efforts to support the economy.

Earlier, the National Federation of Independent Business said its small-business optimism index rose 0.4 point in August to 100.1. Small-business owners were somewhat more optimistic about the economy, but said record shortages of labor and supplies were cutting into sales and profits.

What companies are in focus?
How are other assets trading?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.285%

    was down 4.4 basis points at 1.279%. Yields and debt prices move in opposite directions.

  • The ICE U.S. Dollar Index
    DXY,
    -0.21%
    ,
    a measure of the currency against a basket of six major rivals, fell 0.2%.

  • Oil futures rose, with the U.S. benchmark
    CL00,
    +0.04%

    up 0.5% at $70.83 a barrel. Gold futures
    GC00,
    +0.65%

    rose 0.4% to $1,801 an ounce.

  • In European equities, the Stoxx Europe 600
    SXXP,
    -0.01%

    fell 0.1%, while London’s FTSE 100
    UKX,
    -0.49%

    slipped 0.6%.

  • Chinese stocks continued to come under pressure, with the Shanghai Composite
    SHCOMP,
    -1.42%

    falling 1.4% and the Hang Seng
    HSI,
    -1.21%

    dropping 1.2%. Analysts continue to focus on the declining fortunes of property giant China Evergrande
    3333,
    -11.87%
    ,
    and a key slate of economics data is due on Wednesday.

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