August’s recently released consumer price index (CPI) has spooked the financial markets significantly. The data showed inflation was down to 8.3% from the 8.5% recorded in July. Although wall street analysts expected a decrease, the consensus was for inflation to drop to 8%.

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The Feds are now not likely to alter their aggressive stance in the fight against inflation. Therefore, with the CPI printing higher than anticipated, analysts believe that a third successive 75 basis points (BPS) interest rate hike is all but confirmed. Consequently, ahead of the Federal Reserve’s meeting next week, the stock and crypto markets have reacted, nose-diving and wiping billions of dollars.

Stocks Dip as Markets Get Spooked

The tech-heavy Nasdaq 100 Index plunged 5.5%, the largest since a drop of more than 12% in March 2020. Meanwhile, the S&P 500 fell 4.4%, the most since June 2020.

American billionaires saw their fortunes tumble in what was the ninth-worst daily loss ever. Jeff Bezos’ wealth decreased by $9.8 billion. Elon Musk lost $8.4 billion, while Mark Zuckerberg, Larry Page, Sergey Brin, and Steve Ballmer saw their wealth decline by more than $4 billion. Meanwhile, Warren Buffett and Bill Gates lost $3.4 and $2.8 billion, respectively.

This year has seen numerous challenging days for the markets and billionaires’ wealth. Following an eight-minute speech from Federal Reserve Chair Jerome Powell last month, the same group of US billionaires lost $78 billion in one day.

Crypto Market Loses $69 Billion

The cryptocurrency market was also not spared, losing over $69 billion after the CPI data release. The total market cap of digital assets fell by over 8.4%, from around $1.07 trillion to $987 billion. 

Bitcoin declined by over 10% following a rally last week that saw the foremost digital asset break above $22,000 from a low of $19,000. The decline in BTC’s value has seen it break below the $20,000 mark. 

Meanwhile, Ethereum, expected to complete its merge this week, has also fallen by over 7% and continued to trade below $1,600. Despite the decline, social activity around ETH, which has grown over the last three months, peaked ahead of the merge’s completion.

According to Lunar Crush, Ethereum has had nearly 55 billion social engagements from over 23 million mentions and over 160,000 contributors in the last three months. The majority of cryptocurrencies experienced large liquidations, according to statistics from Coinglass.

Markets Pricing in a 75 BPS Hike

The decline in stocks and crypto points to the Feds’ financial market pricing of a 75 BPS hike. The Federal Reserve is expected to maintain its hawkishness in the battle against inflation. This expectation caused a second consecutive day decline in the MSCI’s gauge of stocks across the globe.

The MSCI gauge measures stock performance across 23 developed markets and countries. The index recorded its most significant one-day percentage decline in three months following the inflation data release. Consequently, investors expect a rate hike of at least 75 BPS at the Fed’s policy meeting next week. According to the CME Fed watch tool, a 100 BPS hike increase is also a strong possibility. 

Meanwhile, the Fed’s forecast and worries about persistent inflation have kept the US Treasury bonds’ yield moving higher. After reaching a 15-year high at 3.834%, the two-year US Treasury yield, which usually moves in lockstep with interest rate forecasts, was up 2.4 BPS at 3.780%.

The closely watched US Treasury yield curve measures the difference between the rates on two- and 10-year Treasury notes. It is a reliable recession indicator and economic expectation gauge, and It was at -36.8 basis points.

Across the board, the poor performance of stocks continued yesterday. The Dow Jones Industrial Average dropped 64.11 points (0.21%). The Nasdaq Composite gained 24.49 points (0.21%) to close at 11,658.07. Meanwhile, the S&P 500 fell by 1.07 points (0.03%), closing at 3,931.62.

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