The US headline CPI data released last week surprised the market
with a smaller drop than expected. As such, there is a higher chance
of a 75-basis-point rate hike in the upcoming September FOMC
meeting. The US stock market reacted with a major sell-off last week,
signaling that the summer rally has overstayed its welcome. The Dow
Jones Industrial Average plunged by 1,300 points or 4.2% last week.
The S&P 500 dropped by 5.2%, while the NASDAQ declined by 6.0%.
The interest rate decision from the Fed due this Wednesday (UTC -4)
will be a significant event for US markets this week. The market is
currently pricing in an 85% chance of a 75bps rate hike and a 15%
chance of a 100bps hike. The current price action for the Dow Jones,
combined with the Schaff Trend Cycle indicator, indicates that the
downside strength is still present and may continue to stick around.
The Schaff Trend Cycle sits far below the 25 levels at 7.6.