The latest inflation data from the US initially weighed on markets on Thursday. Despite the sharp braking maneuver by the Federal Reserve (Fed), consumer prices are still rising rapidly. The Fed is therefore likely to continue its aggressive cycle of interest rate hikes. But during the day, prices recovered and climbed steeply. The S&P 500 eventually gained +2.6%. The Dow Jones gained +2.8% and closed above the mark of 30’000 points. The Nasdaq Composite climbed +2.2%.
Asian markets follow the rally on Wall Street and gain strongly on Friday. In Tokyo, the Nikkei jumps +3.2% and in Hong Kong, the Hang Seng is up +3.3%. The Shanghai Composite advances +1.6%. In China, consumer prices rose faster than expected in September. Annual inflation stood at +2.8%, climbing to the highest level since April 2020.
In this volatile market environment, the earnings season is kicking off. In the US, the first stock market heavyweights present their figures for the third quarter and, as usual, the major banks lead the way. On the agenda today are the results of JPMorgan Chase, Citigroup, Morgan Stanley and Wells Fargo.
US consumer prices rose sharply again in September, increasing by +8.2% year-on-year. This represents only a slight slowdown in year-on-year price growth: in August, annual inflation was +8.3%. The core inflation rate rose to +6.6%, from +6.3% in the previous month, and reached the highest level since August 1982.
The latest inflation data thus confirm the fears of the Federal Reserve (Fed) that high inflation is likely to prove extremely persistent. Indeed, at the last monetary policy meeting, numerous Fed members stated that they considered it riskier to do too little to combat the rapid rise in prices than to overshoot in the fight against inflation. This is evident from the minutes of the meeting. After the new inflation report, the way is open for another massive rate hike. The Fed has already raised key interest rate three times in a row by 75 basis points and is likely to decide on another rate hike of this magnitude in November.
In the UK, meanwhile, the chaos surrounding the government's controversial tax package is spreading. On Thursday, there was renewed speculation that British Prime Minister Liz Truss could withdraw the planned tax cuts. In any case, pressure on the leader of the government increased, both from within her own party and from outside. For example, Kristalina Georgieva, the director of the International Monetary Fund (IMF), said after a meeting with Andrew Bailey, the head of the Bank of England, that fiscal policy should not undermine monetary policy. The British Finance Minister Kwasi Kwarteng has in the meantime left the current IMF meeting in Washington to return to the UK and attend to the economic crisis.
The British government unveiled a budget in September that includes tax cuts of up to GBP 45bn. However, there is no plan to finance the new debt. The subsequent market turmoil prompted the Bank of England to launch an emergency purchase program to support the domestic financial market. This program is scheduled to end today. The prospects of a turnaround in fiscal policy gave the British pound a boost on Thursday. The currency climbed to USD 1.1295 against the U.S. dollar after trading below USD 1.11 in the morning.
In Germany, inflation rose in September to its highest level in around seventy years. Thus, prices have increased by +10.0% compared to the same month last year, the Federal Statistical Office announced on Thursday, thereby confirming an initial estimate. In August, the annual inflation was +7.9%. Among other things, the expiry of the 9-euro ticket for public transport and the end of fuel discounts have contributed to the price increase. These measures had somewhat dampened price increases in the summer. However, energy prices also rose massively once again, increasing by almost +44% year-on-year. In addition, consumers have to pay almost +19% more for food than a year ago. A higher price growth was last measured in Western Germany in the post-war years at the beginning of the 1950s. Since then, however, the calculation method has changed.
|03:30||China||Consumer price index (September, y/y)||+2.5%|
|03:30||China||Producer price index (September, y/y)||+2.3%|
|05:00||China||Trade balance (September)|
|11:00||EZ||Trade balance (August)|
|14:30||US||Retail sales (September, m/m)||+0.3%|
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Source: LGT Bank (Switzerland) Ltd.
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