The S&P 500 fell 0.45 percent to a six-week low as markets priced a 94 percent probability of a Federal Reserve rate hike, with Deutsche Bank economists joining the consensus. Oil’s climb to nearly $108 a barrel revived stagflation fears that knocked two-thirds of the index lower, though the benchmark remains within 3 percent of its record high.
The hike is priced
Deutsche Bank’s Henry Allen and colleagues noted the selloff followed a familiar script: higher energy costs feeding stagflation narratives that pressure risk assets. The bank’s US economists expect a move, but the focus has shifted to Chair Warsh’s guidance and the updated dot plot. Markets have moved from debating whether the Fed will hike to parsing how many more the median projection shows.
Europe follows the script
The STOXX 600 dropped 0.28 percent to a three-month low, leaving it less than 4 percent below its peak. The decline mirrors the US momentum shift since early August, when both indexes were making fresh highs. Chip stocks provided the only counter-narrative, with the Philadelphia semiconductor index rising 0.40 percent after Monday’s slump.
Asia stabilizes on oil pullback
Brent pulled back 0.77 percent to $107.91 a barrel overnight, helping Asian markets recover. The KOSPI gained 1.16 percent, the Nikkei 0.40 percent, the Shanghai Composite 0.50 percent, the CSI 300 0.60 percent and the Hang Seng 0.12 percent. S&P 500 futures rose 0.22 percent while the 10-year Treasury yield slipped 1.6 basis points to 4.99 percent.
The dot plot is the event
Stabilization ahead of the decision is not conviction. The data that matters arrives with the statement and the projections. If Warsh signals a higher terminal rate or the dot plot shifts up, the six-week low becomes a waypoint rather than a floor.