Global equity markets suffered their worst drop in two years yesterday after consumer price data in the US came in stronger than expected, writes Ian Murphy of MurphyTrading.com.
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As soon as the CPI data was released at 08:30 ET (red bars above) markets sold off based on the expectation that the Federal Reserve is now more likely to raise rates aggressively at their next meeting on September 22, with a full 100-point hike possibly on the cards.
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At yesterday’s close, three-month US treasuries were paying 3.28%, while a 30-year IOU to Uncle Sam will only pay 3.51% (red line above). This means we are close to a yield curve inversion which has a great track record in flagging a selloff in stocks accompanied by a recession.
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In other good news, the latest trigger on the Help Strategy was stopped during yesterday’s plunge and failed to reach the first target on ProShares Ultra S&P500 2x Shares (SSO) or futures (in which I had a position, as shown above). So, it’s back to cash as we sit and wait for the market to make its next move.
Learn more about Ian Murphy at MurphyTrading.com.
