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Markets cautious as US inflation reaccelerates and Israeli ground offensive begins

Inflation in the US accelerated again in September and consumer spending was strong during the month, data released at the end of last week showed. That prompted investors to look ahead to the US Federal Reserve’s (Fed) next monetary policy announcement on Wednesday despite clear expectations for the Fed to keep rates unchanged. Markets were cautious at the start of the week with most Asian stock markets in the red. One main driver of negative sentiment was the start of the Israeli ground offensive on the weekend.

Shane Strowmatt, LGT
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5 minutes
Personal Consumption Expenditures
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The Core Personal Consumption Expenditure Index (PCE) for the US increased 0.3% in September when compared to the previous month, which was faster than August’s 0.1% but in line with market expectations. When compared to the same period last year, core PCE was up 3.4%. The core reading ignores volatile food and energy prices and is the Fed's preferred gauge of inflation.

The PCE report form the Commerce Department also contained data showing strong consumer spending with personal spending rising 0.7% in September from the previous month. That contrasts with the consumer survey from the University of Michigan, which was also released Friday and showed consumers becoming more careful about purchasing decisions. Consumer Sentiment in September came in at 63.8 points in October, down from the 67.9 reading in September.

In New York, stocks finished last week mostly lower, but tech stocks were able to stabilize on Friday. The Dow Jones Industrial lost 1.1% and the S&P 500 dropped 0.5%. The Nasdaq-100 gained 0.5%, largely supported by Amazon (+6.8%) and Intel (+9.3%). Both companies reported earnings after the bell on Thursday. Stocks of oil majors ExxonMobil (-1.9%) and Chevron (-6.7%) both slipped on Friday after the companies reported substantially lower earnings than during the same period last year. The difference was mostly due to a lower oil price. West Texas Intermediate crude oil was trading slightly weaker at around USD 84 per barrel to start the week.

In the Asia-Pacific region, stock markets were mixed on Monday. In Tokyo, the Nikkei 225 led losses, down 1% ahead of a Bank of Japan monetary policy decision due on Tuesday. Analysts do not expect the Japanese central bank to change its key short-term interest rate of -0.1% or make changes to its yield-curve control targets. In South Korea, the Kospi gained 0.3%. In Australia, the S&P/ASX 200 closed down 0.8% after retail sales in the nation increased at the fastest pace in 8 months. That led some traders to believe the Reserve Bank of Australia will increase rates again at its next monetary policy decision in November. Hong Kong's Hang Seng Index fell 0.3%, while the Shanghai Composite was up 0.2%.

Corporate news in focus: Quarterly figures from HSBC, Clariant, Erste Group Bank, McDonald’s, and a production report from Glencore.

Economic data in focus: German gross domestic product (08:00 CET), Switzerland’s KOF Economic Barometer (09:00), Austrian gross domestic product (09:00), German Consumer Price Index (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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