The rate of consumer price increases in Germany plummeted in September to its lowest level in two years. However, the positive sentiment from slower price gains was largely offset by new forecasts that show Europe’s largest economy shrinking over the 2023 full year.
The Consumer Price Index (CPI) in Germany came it at 4.3% in September, when compared to the same month a year earlier. That is much lower than the 6.4% rate of year-on-year price increases in August. The drop is largely due to effects stemming from discounts to public transportation introduced in Germany last summer, which were no longer included in the one-year comparison period in September’s data. The drop in inflation will certainly be welcomed by the European Central Bank (ECB), which raised interest rates for a tenth consecutive time earlier this month to combat price increases.
Despite the positive inflation news, new forecasts by five institutes that advise the German federal government showed gross domestic product (GDP) is expected to shrink by 0.6% this year. The advisory bodies revised their forecast of 0.3% expansion from April downward into contractionary territory. The European Commission expects the euro area economy as a whole to grow by just 0.8% this year, largely dragged down by Germany, which was already in a recession in late 2022 and early 2023 and has since been struggling to create economic growth. The DAX ended Thursday’s session 0.7% higher and the Euro Stoxx 50 gained 0.8%.
Stock indices on Wall Street attempted an end-of-the-quarter rally with the major indices making gains on Thursday. The Dow Jones Industrial ended the session up 0.4% and the S&P 500 gained 0.6%. The Nasdaq-100 led gains, up 0.8%.
In individual stocks, Nike shares were trading about 7% higher in after-hours trading following the release of the company’s first-quarter figures after the close of US markets. Investors were watching the stock closely as apparel companies have lagged behind the wider equity market in 2023 despite consumer spending remaining stronger than most had thought at the start of the year. On Friday, the Bureau of Economic Analysis releases personal consumption expenditures, which will help economists to gauge the strength of consumer spending. The data - particularly its core index, which omits volatile energy and food prices - is closely watched by the Federal Reserve as a measure of inflation in the economy.
In the Asia-Pacific region, most stock markets traded in positive territory at the end of the week and quarter. Japanese data was in focus with Tokyo’s Consumer Price Index up 2.8% in September when compared with the same month last year. That was the slowest rate of price increases in Tokyo in a year. Prices in the Japanese capital are considered a leading indicator for national inflation. The Nikkei 225 started the session with mild gains, but later fell, trading down 0.4% in afternoon trading. In South Korea, the Kospi was trading 0.1% higher. In Australia, the S&P/ASX 200 gained 0.4%. Hong Kong's Hang Seng Index was the regional leader, trading up 2.6%, while in mainland China the Shanghai Composite only increased 0.1%.
The saga surrounding embattled property developer China Evergrande continued at the end of the week. The company’s shares were suspended from trading on Thursday after losing more than one fourth of their value in the first two trading sessions of the week. Additionally, the firm’s chairman has been suspected of crimes, according to a statement by China Evergrande. It was not clear what crimes Hui Ka Yan was suspected of committing, but the Hong Kong stock exchange is keeping the shares halted until further notice.
Corporate news in focus: There is no major corporate news scheduled today.
Economic data in focus: UK gross domestic product (08:00 CET), French Consumer Price Index (08:45), Switzerland’s KOF Economic Barometer (09:00), European Central Bank President Christine Lagarde speaks at an energy transition event in Paris (09:40), German unemployment rate (09:55), euro area Consumer Price Index (11:00), US personal consumption expenditures (14:30).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.