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Stubborn inflation holds back equity markets for now

US producer price data released on Friday confirmed a more persistent than expected inflation environment. As a result, the yield on ten-year US Treasuries climbed above 4.3%. While financial markets in the US were closed for the President's Day holiday, stock markets in the Asia-Pacific region had a mixed start to the new week.

Alessandro Fezzi, LGT
Temps de lecture
5 minutes
© Shutterstock

In China, stock markets returned to trading today after the Lunar New Year holidays. The CSI 300 was up 0.5%. China's central bank left its benchmark interest rate unchanged as expected. The Chinese central bank announced that it would keep the interest rate on a one-year USD 69.5 billion equivalent medium-term lending facility unchanged at 2.5%. In Hong Kong, however, the Hang Seng Index fell by around 1% and the Hang Seng Tech Index lost 2.7%. In Tokyo, the Nikkei 225 was little changed after trading close to its record high on Friday. The broader Topix was up 0.5%. South Korea's Kospi gained 1.3% and in Australia the S&P/ASX 200 closed 0.1% higher.

In New York, last Friday's stronger-than-expected rise in US producer prices dampened speculation of interest rate cuts and, by extension, equity indices. US producer prices rose 0.3% in the first month of the year compared to the previous month (consensus +0.1%). The annualised inflation rate was 0.9% (consensus +0.6%). Core inflation, i.e. excluding energy and food prices, was even stronger at 0.5% m/m (consensus +0.1%). On a year-on-year basis, the core rate was 2.0% in January, up from 1.7% in December. Analysts had expected 1.8%. Producer prices tend to influence consumer prices, on which US monetary policy is based.

As a result, the Dow Jones Industrial closed 0.4% lower on the day at 38,627.99 and the broader S&P 500 fell 0.5% to 5,005.57. The Nasdaq lost around 0.9% on Friday and was down around 1.5% on the week. Meanwhile, in the bond market, the yield on ten-year US Treasuries stood at 4.3%.

US consumer sentiment continued to improve in February. The University of Michigan reported on Friday that its consumer sentiment barometer improved by 0.6 points to 79.6, the best reading since mid-2021. The fact that sentiment has not deteriorated indicates that consumer confidence remains strong, with the slowdown in inflation and the solid labour market having a positive effect, it said.

Meanwhile, housing starts plunged 14.8% month-on-month in December, after rising 3.3% in the previous month. Building permits, an important indicator of future construction activity, also fell in January. Compared to the previous month, permits were down 1.5% (+1.3%).

This week the focus will be on the FOMC minutes on Wednesday and, at the end of the week, the German PMI and Ifo business climate barometers.

Corporate news in focus: Quarterly figures from BHP Billiton.

Economic data in focus: US markets are closed on Monday for the Presidents’ Day holiday, German Bundesbank’s monthly report.


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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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