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Markets ignore higher-than-expected US producer price increases

The rate of price increases for US producers came in hotter than the market anticipated last month in a sign that the Federal Reserve’s (Fed) monetary policy may not be tight enough yet to tame inflation. Markets paid no attention to the resurgence of inflationary pressures with Wall Street rallying for a fourth session in a row and Treasury yields continuing to fall.

Shane Strowmatt, LGT
Tempo di lettura
5 minuto
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US producer prices increased at a faster rate than markets had expected in September. The Producer Price Index (PPI) increased 0.5% when compared with August or 2.2% when compared to September of last year. Excluding volatile energy and food prices, prices for producers were up 0.3% from the previous month. Rising oil prices over the late summer months has caused inflation to tick up again despite the most aggressive monetary policy tightening by the world’s largest central banks in decades. Producer prices are often indicative of broader prices increases in the economy as companies try to push on their higher purchasing prices to consumers. The US Consumer Price Index is due out later Thursday.

In New York, stock indices rallied for a fourth session in a row despite the release of the Federal Open Market Committee (FOMC) minutes, which showed that another interest rate increase may still be likely. While the FOMC members are split on whether to hike again, they remain in agreement that even without another increase, interest rates must remain high for a long time in order to bring inflation back down to its 2% target. The Dow Jones Industrial gained 0.2% and the S&P 500 increased 0.4%. The tech-heavy Nasdaq-100 was up 0.7%.

In individual stocks, oil company Exxon Mobil said it will take over Pioneer Natural Resources for nearly USD 60 billion in the largest acquisition in the world this year, which would make Exxon a major player in the shale oil market. Exxon shares slipped 3.6% after the announcement while Pioneer’s shares gained 1.4%. Birkenstock shares lost 12.6% of their value on the first day of trading on Wall Street on Wednesday.

In the Asia-Pacific region, stock markets also continued to rally midweek. In Tokyo, the Nikkei 225 was up 1.7% and in South Korea, the Kospi gained 0.8%. In Australia, the S&P/ASX 200 was trading just slightly in positive territory. Hong Kong's Hang Seng Index gained nearly 2%, while the Shanghai Composite increased 0.8%.

The conflict in the Middle East continued to escalate midweek. Israel shelled southern Lebanon in response to a missile attack from the Hezbollah militant group. The conflict on the northern border is worrisome for markets as the Hezbollah is backed by Iran and Syria. Any expansion of tensions in the region could destabilize markets, particularly in the case of Iran, which would have implications for the oil market.

Corporate news in focus: Givaudan 9-month revenue, Südzucker Q2 figures.

Economic data in focus: UK gross domestic product and trade balance (08:00 CET), OPEC monthly oil report (1300), US Consumer 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.