Inflation in the US cooled in February but remained well above the Federal Reserve’s 2% inflation target. The personal consumption expenditures price index excluding food and energy – which is also known as core PCE and is the Fed’s preferred gauge of inflation – rose by 0.3% in February from the previous month. In January, it increased 0.6%. The core PCE price index in February was up 4.6% when compared to the same month a year earlier. The Fed has sent a clear and direct signal that it is approaching the end of its tightening cycle and wants to observe the effects of its aggressive monetary policy on the economy in the coming months. Whether a 4.6% core PCE price index is sufficient to satisfy the central bank for the time being will be seen at its next interest rate decision in early May.
In Europe, price growth also showed clear signs of slowing. In March, inflation came in at 6.9% in the euro area, down from 8.5% in February. The main driver of the slower price growth was energy prices, which fell by 0.9% after having already fallen by 13.7% in February. Europe now appears to have avoided the worst-case scenario in the energy crisis and consequently the European Central Bank recently adjusted its full-year 2023 inflation expectation down to 5.3%.
At first glance the drop in inflation sounds like a blessing for the European Central Bank, which raised rates by 50 basis points last month in an effort to combat inflation. But a closer look shows higher prices may be here to stay for a while. Core inflation – which strips out energy, food and some other prices – increased in March to 5.7% from 5.6% in February. Furthermore, the main driver of the falling inflation figures – lower energy prices – received some pushback over the weekend when Saudi Arabia and other OPEC+ countries announced oil output cuts of more than 1 million barrels per day. Brent crude futures increased by up to 8% following the announcement.
Equity markets in New York ended on a strong note last week, following the slowing inflation data. The Dow Jones Industrial gained 1.26% to finish the week at 33’274.15 points and the S&P 500 increased 1.44%, closing at 4109.31 points. On the Nasdaq, the major tech indices were up around 1.68%. In corporate news, Tesla said over the weekend that it posted the highest new deliveries in the first quarter of the year in the electric vehicle manufacturer’s history.
Markets in Asia mostly continued with last week’s strong trend, starting the new week with gains. In mainland China, the Shanghai Composite was trading up 0.6% and the Shenzhen Component increased 0.2%. Hong Kong’s Hang Seng Index was down 0.2% and the Hang Seng Tech Index lost 0.7%. Australia’s S&P/ASX 200 gained 0.8%.
Economic data out of Japan was mixed to start the week with the Japan Tankan Business Conditions Large Enterprises Manufacturing Index coming in lower than expected, which would suggest poor business sentiment among major manufacturers. At the same time Monday, the PMI gained some ground, rising to 49.2 in March – up from 47.7 in February – to approach the 50-mark, which signals expansion. Japan’s Nikkei was trading up 0.4% Monday.
Corporate news in focus: No major corporate news scheduled.
Economic data in focus: Swiss Consumer Price Index (08:30) and manufacturing PMIs from various countries (Switzerland at 09:30 CET, Germany at 09:55 CET, euro area at 10:00 CET and US at 16:00 CET).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.