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CNBC Every day Open: Inflation and fee hikes aren’t over, warns the Fed Acquire US

Federal Reserve Chairman Jerome Powell participates in a gathering of the Monetary Stability Oversight Council on the U.S. Treasury on July 28, 2023 in Washington, DC.

Kevin Dietsch | Getty Photographs Information | Getty Photographs

This report is from at this time’s CNBC Every day Open, our new, worldwide markets e-newsletter. CNBC Every day Open brings buyers on top of things on the whole lot they should know, regardless of the place they’re. Like what you see? You possibly can subscribe right here.

What it’s essential to know at this time

The Fed’s nonetheless fearful
Federal Reserve officials are still worried that inflation could rise again, which would necessitate more interest rate hikes, according to minutes from the July meeting. Officials were also concerned that the decline of value in commercial real estate could affect banks and other financial institutions, sending ripples throughout the economy.

Losing streak
U.S. markets fell for a second straight day and Treasury yields rose as traders digested hawkish minutes from the Federal Reserve. European markets traded mixed Wednesday. The regional Stoxx 600 index was mostly flat: Media stocks retreated 0.9%, but a 0.9% rise in retail stocks made up for that.

Inflation relief for the U.K.
U.K. headline inflation in July dropped to 6.8% year on year, in line with economists’ forecast. However, core inflation, which excludes energy, food, alcohol and tobacco prices, remained unchanged from June at 6.9%. Separately, data released Tuesday showed second-quarter wages growing 7.8% year over year, the fastest since records began in 2001.

VinFast valuation
VinFast shares jumped in their trading debut this week, taking the company’s valuation north of $85 billion at one point. That’s higher than General Motors’ $47.6 billion and Ford’s $47.2 billion. Still, the company has yet to make a profit and has faced difficulties delivering vehicles to U.S. customers.

[PRO] Don’t panic
The S&P 500 may have declined in nine of its past 11 sessions. But that’s nothing to worry about: We aren’t headed for a bear market slump — this is just a garden variety correction. CNBC Pro’s Bob Pisani explains why, and what to focus on in this environment.

The bottom line

The fight against inflation isn’t over. And there’s a risk interest rates have to go higher. That’s the key takeaway from minutes of the Fed’s July meeting.

Here are the exact words from the meeting summary: “With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”

That wasn’t something markets wanted to hear. Investors think there’s a 60% chance rates will be at current levels at the end of the year, according to the CME FedWatch Tool. However they could must revise their bets quickly, particularly since U.S. financial information is coming in hotter than anticipated.

“Current third-quarter GDP estimates, coupled with recent retail gross sales information, counsel a way more sturdy underpinning to the financial system, definitely not what the Fed desires to see as they navigate the so-called ‘final mile’ in direction of reaching worth stability,” mentioned Quincy Krosby, chief world strategist for LPL Monetary.

Longer-term U.S. Treasury yields — that are sometimes extra delicate to rate of interest adjustments — rose in response to the minutes. The ten-year yield traded round 5 foundation factors larger at 4.258%, its highest closing fee in additional than 15 years. The two-year yield added practically 4 foundation factors to hit 4.967%.

It wasn’t a reasonably image within the inventory market as nicely. All three main indexes fell for his or her second consecutive session. The S&P 500 declined 0.76%, the Dow Jones Industrial Common dropped 0.52% and the Nasdaq Composite slumped 1.15%. Each the S&P and Nasdaq closed beneath their 50-day transferring common.

However there could be a silver lining to the sell-off. “Valuations have gotten much less and fewer excessive,” mentioned Sam Stovall, chief funding strategist at CFRA Analysis.

That is a great alternative for buyers to leap in on Large Tech shares comparable to Nvidia and Tesla — supplied the expectation that earnings have bottomed within the second quarter proves true. However given the hawkish slant of the Fed minutes, it could be a steeper trough to climb out of than beforehand thought.

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