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Markets rise on slowing US inflation

Stock markets rallied Wednesday after consumer prices in the US increased at the slowest pace since 2021. Market participants interpreted the unexpectedly low inflation as a signal the US Federal Reserve (Fed) could be quickly coming to an end of its fastest monetary policy tightening cycle in decades.

Shane Strowmatt, LGT
Temps de lecture
5 minutes
Inflation shown with icons

Consumer prices in the US increased by the smallest monthly amount since August 2021, according to the US Labor Department. The Consumer Price Index (CPI) rose 3.0% in June when compared with the same month a year earlier. That number is slowly approaching the Fed’s target of 2% inflation. Core CPI was still a bit higher at 4.8%. At the same time, the Fed’s Beige Book - a report surveying business leaders and market experts - showed that market participants expect the economy to cool down in the coming months despite a mild increase in economic activity the last month. Importantly, it confirmed the direction of the lower CPI data, also expecting a continued moderation of price pressures in the coming months.

In New York, stock indices profited on Wednesday from the unexpectedly sharp drop in inflation, which gave further momentum to technology stocks in particular. The Dow Jones Industrial extended its recent gains somewhat, finishing up 0.25% at 34,347.43 points. The S&P 500 gained 0.74% at 4,472.16 points. The tech-heavy Nasdaq-100 closed 1.24% higher at 15,307.23 points.

In the Asia-Pacific region, stock markets also rose on the prospects that the Fed hiking cycle could be coming to an end. Hong Kong's Hang Seng Index led early gains on Asian markets on Thursday, trading up 2.4%. The Shanghai Composite was up 1% despite trade data released Thursday that showed China’s exports fell the most in three years in June, dropping 12.4% compared with the same month a year earlier. Imports likewise fell 6.8%. In Tokyo, the Nikkei 225 was up 1.5% and in South Korea, the Kospi gained 0.9%. Australia’s S&P/ASX 200 was trading up 1.6%.

In currencies, the Swiss franc reached its highest exchange rate on Wednesday versus the US dollar since 2015. Despite decelerating inflation at 1.7% year-on-year in June, a figure much lower than in neighbouring European countries, the Swiss National Bank has signalled that it could continue to raise interest rates, supporting the franc.

Corporate news in focus: Barry Callebaut Q3 revenue; Q2 figures from PepsiCo, Fastenal and Delta Air Lines.

Economic data in focus: UK GDP and trade balance (08:00 CET), French Consumer Price Index (08:45), US Producer Price Index and weekly initial jobless claims (14:30).

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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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