After US consumer prices came in hotter than market expectations, stocks slipped, ending a four-day rally on Wall Street. The data comes just one day after US producer prices increased at a faster rate than expected. The stubbornly high inflation is rekindling higher-for-longer interest rate narratives. The dollar advanced and yields on two-year US government debt increased past 5% on Thursday.
The US Consumer Price Index (CPI) increased in 0.4% in September when compared with the previous month, somewhat higher than market expectations. Higher energy costs have been driving recent inflation readings. Core CPI - which excludes volatile energy and food prices and is a preferred measure of inflation for many economists and central banks - was up by 0.3% on the month or 4.1% when compared to the same period a year earlier. That level is still more than double the Federal Reserve’s (Fed) inflation target of 2%. Inflation has begun to reaccelerate in many countries, driven by increasing energy prices in recent months. That has offset many of the gains made by central banks in their fight against inflation.
In New York, stock indices closed lower, as the inflation data of the last two days revived worries of another possible Fed interest rate hike this year. Despite the fastest Fed tightening cycle in decades, the US labour market has remained largely robust with initial jobless claims coming flat at 209,000 last week. A strong labour market generally gives the Fed more room to continue with rate increases. The Dow Jones Industrial lost 0.5% and the S&P 500 dropped 0.6%. The Nasdaq-100 ended Thursday’s session down 0.4%.
Hong Kong's Hang Seng Index was leading losses in the Asia-Pacific region, down 2.1%, and the Shanghai Composite lost 0.6% as traders digest inflation and trade data out of the world’s second largest economy. While inflation in the West has been running high the last two years, China has had to deal with low price gains and even price cuts, which underscore the nation’s weak economic recovery this year. Chinese CPI in September was flat on an annual basis while the Producer Price Index (PPI) slipped 2.5% compared to the same month last year. Likewise, both exports and imports fell in September when compared to the previous year, a sign of slow economic activity. Exports and imports both fell by 6.2%, when calculated in US dollars.
Other markets in the Asia-Pacific region were likewise suffering at the end of the week. In Tokyo, the Nikkei 225 lost 0.7% and South Korea’s Kospi fell 1%. In Australia, the S&P/ASX 200 was down 0.6%.
The political situation in the US House of Representatives became even more complicated on Thursday, when Steve Scalise, who had already been picked by Republicans to be the next speaker of the House, decided to end his candidacy. This is the second week that the legislative body has been without a leader.
Corporate news in focus: Q3 figures from UnitedHealth Group, PNC, J.P. Morgan, Wells Fargo, Citigroup.
Economic data in focus: Swiss Producer Price Index (08:30 CET), French Consumer Price Index (08:45), euro area industrial production (11:00), US Import and Export Price Index (14:30), European Central Bank President Christine Lagarde takes part in an IMF seminar in Marrakesh (15:00), University of Michigan Consumer Sentiment Index (16:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.