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Markets erase losses after US inflation meets expectations

Equity markets erased some losses from earlier in the week after Thursday’s inflation data out of the US was in line with expectations. In Asia stock markets traded mostly higher on Friday despite weak Purchasing Managers’ Indices (PMI) readings out of the region. The announcement by SNB Chairman Thomas Jordan that he would be stepping down at the end of September came as a surprise today. 

Shane Strowmatt, LGT
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The US Personal Consumption Expenditures Price Index (PCE) increased 0.3% on the month in January or 2.4% when compared with the same period a year earlier. Core PCE - which strips out volatile food and energy prices and is the Federal Reserve’s (Fed) preferred gauge of inflation - was 0.4% higher or up 2.8% when compared with January of 2023. Both the month-on-month and year-on-year figures were in line with market expectations. The lack of a surprise to the upside was enough to reassure markets: US equities recovered most losses made earlier in the week. Traders were concerned that a surprisingly high PCE reading - much higher than the Fed’s 2% inflation target - could set off another wave of fears that the Fed could push back interest rate hikes to even later into 2024. Markets have already essentially ruled out cuts by the Fed at its next two meetings in March and May.

In New York, stock indices were moving back towards their all-time highs set last week after suffering minor losses earlier in the week. The Dow Jones Industrial gained 0.1% and the S&P 500 was up 0.5%. The Nasdaq-100 bounced back almost 1%.

Investors in Europe had more data to dig through on Thursday. Of particular interest was the Swiss gross domestic product (GDP), which came in above market expectations. GDP adjusted for large sporting events came in 0.3% higher in the fourth quarter of 2023, the same pace as the previous quarter and much stronger than analysts’ expectations. Over the full year of 2023, the Swiss economy grew 1.3%. While the important pharmaceutical and chemicals industries stuttered towards the end of the year, other industrial sectors picked up the slack. The growth at the end of the calendar year comes despite a strong franc, which makes Swiss products more expensive in foreign countries. The Swiss National Bank (SNB) has been commenting more frequently on the strength of the franc in recent months, displaying concern about its relative strength, but Thursday’s data shows Swiss companies remain largely competitive despite the strong currency. The SNB is not expected to move interest rates at its next monetary policy meeting in March. Switzerland’s SMI gained 0.2% on Thursday.

In unrelated news, SNB Chairman Thomas Jordan said he will leave the SNB as of the end of September of this year. He has served as chairman since April 2012 and oversaw notable events such as removing the cap on the EUR/CHF exchange rate in 2015.

Elsewhere on the continent, the probability of seeing rate cuts soon from the European Central Bank (ECB) looked higher after prices in the euro area’s largest economy, Germany, decelerated in February. The Consumer Price Index (CPI) in Germany increased 2.7% on the year in February, a slower pace than January’s 3.1%. Inflation data out of France and Spain released earlier Thursday showed a similar trend. The decreasing inflation along with recent, weak economic data out of several euro-area economies have caused traders to ramp up bets that the European Central Bank will soon kick off an interest rate cutting cycle. The Euro Stoxx 50 lost 0.1% on Thursday while Germany’s DAX gained 0.4%.

In the Asia-Pacific region, stock markets traded mostly higher to finish the week despite PMI readings signalling further contraction in some of the region’s most important manufacturing sectors. In China, the official Manufacturing PMI came in at 49.1 points in February, the fifth month of contraction in a row. The Caixin/S&P Global Manufacturing PMI reading was slightly high at 50.9, above the 50 mark, which separate contraction from expansion. Hong Kong's Hang Seng Index gained 0.7 %, while the Shanghai Composite was trading up 0.4% late in the session. In Japan Manufacturing PMI dropped to 47.2 in February, down from 48 in January. February’s reading indicates the fastest contraction in the sector in more than three years. In Tokyo, the Nikkei 225 nevertheless finished the session 1.9% higher, setting a new record high. In South Korea, the Kospi was the only major index to lose value on Friday, fishing the session down 0.4%. In Australia, the S&P/ASX 200 gained 0.6%. More Manufacturing PMI data from Europe and the US will be released later on Friday.

Corporate news in focus: Quarterly figures from Daimler Truck, Kuehne + Nagel.

Economic data in focus: Manufacturing Purchasing Managers’ Indices from several countries throughout the day, including Spain, Italy, Germany, Canada; ISM Manufacturing PMI USA; Swiss retail sales; euro area Consumer Price Index; euro area unemployment rate; University of Michigan US Consumer Sentiment Index.


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Editor: Alessandro Fezzi
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