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Higher US inflation reaffirms Fed's cautious stance

US inflation rose again in February, somewhat more strongly than expected. As a result, the Federal Reserve may be forced to take a wait-and-see approach before initiating a turnaround on interest rates, probably in the summer. Wall Street shook off the now dampened expectations of interest rate cuts, with some indices rising sharply after a weak start to the week.  

Alessandro Fezzi, LGT
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5 minutes
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US consumer prices rose by 0.4% in February from the previous month and by 3.2% over the year. This was mainly due to a 2.3% month-on-month increase in energy costs. Food costs, on the other hand, were unchanged on the month. Economists had expected the annual inflation rate to remain at 3.1%. After US inflation cooled from a peak of 9% in mid-2022 to 3% in mid-2023, consumer price inflation remained above 3%. Core inflation, which strips out the often volatile energy and food components, fell to 3.8% in February from 3.9% the previous month. On average, however, analysts had expected a somewhat sharper decline to 3.7%. On a monthly basis, core consumer prices rose by 0.4%.

The latest inflation data seems to confirm the cautious stance of the US Federal Reserve (Fed). Fed Chairman Jerome Powell and a number of senior central bankers have recently spoken cautiously about the monetary easing expected in the near future. The US economy, which has so far proved more resilient than expected, has contributed to the fact that the Fed is in no hurry to lower its key interest rates. A key factor has been resilient consumer spending, supported by a robust labour market.

In the US equity markets, investors shrugged off the slightly higher inflation data and indices rose sharply on Tuesday after a gloomy start to the week. The Dow Jones Industrial closed at 39,005.49, up 0.6% on the day. The S&P 500 rose 1.1% to 5,175.27 and the Nasdaq technology index gained around 1.5%. The focus was on quarterly results from software maker Oracle, which saw its shares rise almost 12% to a record high. On the one hand, the AI boom is driving the company and, on the other, Oracle has regained its footing in the cloud business, which has been difficult of late.

On the bond market, the yield on ten-year US government bonds climbed to 4.15%, while the US dollar was unable to benefit against the euro from the US inflation data and the renewed dampening of interest rate easing expectations.

Stock markets in the Asia-Pacific region were mixed at mid-week. Japan's Nikkei 225 pared gains and fell around 0.3%, extending its losing streak to a third consecutive day. South Korea's Kospi rose 0.4% after the unemployment rate fell to 2.6% in February from 3% the previous month. The small-cap Kosdaq ended slightly higher, snapping a three-day winning streak. In Australia, the S&P/ASX 200 closed up 0.2%, extending Tuesday's gains. Hong Kong's Hang Seng Index was flat after rising more than 3% on Tuesday and the mainland's CSI 300 lost 0.6%.

In Germany, inflation cooled markedly in February to its lowest level since the summer of 2021, thanks to lower energy prices. The annualised inflation rate was 2.5%, down from 2.9% in January and 3.7% in December. Despite the expiry of the energy price brake at the beginning of the year and the increase in the carbon price to 45 euros per tonne of carbon dioxide (CO2), energy became cheaper in February for the second month in a row. Prices fell by 2.4% compared with the same month last year. The core rate, which strips out volatile energy and food prices, was 3.4%, the same as in January. Economists expect inflation to fall further as the year progresses.

Corporate news in focus: Q4 results from Geberit, Rieter, Sandoz, Adidas, Volkswagen and Inditex.

Economic data in focus: UK and eurozone industrial production.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Lten steht Ihnen ein Berater der Bank gerne zur Verfügung.

Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi
Quelle: LGT Bank (Schweiz) AG

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