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European inflation slows, but Lagarde remains unsure

Inflation in the euro area slowed slightly last month, but remained well above the European Central Bank’s (ECB) 2% target, data released on Tuesday showed. At an event in Portugal, ECB President Christine Lagarde cast doubt again about whether the central bank would be able to lower rates again at its next monetary policy meeting. European markets closed sharply in the red, while Wall Street rallied. In Asia, stocks were trading higher despite a series of weak Purchasing Managers’ Indices (PMI) released early Wednesday.

Shane Strowmatt, LGT
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Annual inflation in the euro area fell to 2.5% in June, down from May’s 2.6%, according to the European Union’s statistical office. Inflation excluding food, energy, alcohol and tobacco prices came in flat at 2.9%. Market participants immediately assumed the moderate fall in headline inflation, which was in line with economists’ expectations, was unlikely to be enough for the ECB to continue with interest rate cuts at its next monetary policy meeting in two weeks. The central bank cut rates by 25 basis points in June, but Lagarde warned at the ECB Forum on Central Banking in Portugal this week that ECB officials are still interpreting the inflation data before making further policy decisions. Markets expect 1 or 2 more cuts from the ECB this year.

Making the ECB’s decision even more difficult were unemployment figures released Tuesday that showed unemployment in the euro area remained at a record low of 6.4% in May. Strong employment puts more money in consumers’ pockets, driving spending and inflation. Europe’s major stock indices dropped across the board on Tuesday, with the Euro Stoxx 50 falling 0.5%, France’s CAC 40 down 0.3% and Germany’s DAX finishing the day with a loss of 0.8%.

More US jobs available

Available positions in the US economy increased in May to 8.14 million from 7.92 million in April, according to the Job Openings and Labor Turnover Survey released on Tuesday by the Bureau of Labor Statistics. The number of open positions had been trending lower from a high in 2022. Following the strong labour market reading, stock indices on Wall Street shot up later in Tuesday’s session. The Dow Jones Industrial gained 0.4%, the S&P 500 was up 0.6% and the Nasdaq-100 closed more than 1% higher.

Asian stocks climb as PMIs fall

In the Asia-Pacific region, stock markets were trading mostly higher despite a series of PMI releases that showed cooling from the previous month. In Tokyo, the Nikkei 225 gained 1.4% after Composite PMI fell to 49.7 in June from 52.6 in May. China’s Caixin/S&P Services PMI slipped to 51.2 from 54.0 the previous month, the lowest level since October. Hong Kong's Hang Seng Index was trading 0.9% higher, while the CSI 300 was down 0.2% on Wednesday. In Australia, the S&P/ASX 200 was trading 0.2% higher South Korea’s Kospi was up 0.4%.

Corporate and macroeconomic calendars

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: Composite and Services Purchasing Managers’ Indices from several countries throughout the day, including Germany, the euro area and the US; Turkish Consumer Price Index, euro-area Producer Price Index, US ADP National Employment Report, US weekly initial jobless claims, US ISM Services PMI, European Central Bank President Christine Lagarde speaks at the ECB Forum on Central Banking in Portugal.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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