Core inflation in the US accelerated last month, data released Wednesday showed, just a week before the Federal Reserve (Fed) announces its next monetary policy decision. The prospect of another Fed hike initially pressure equity markets mid-week, but by the end of Wednesday’s session US indices were trading mixed again. All eyes are on the European Central Bank (ECB) on Thursday, which announces its monetary policy decision in the afternoon.
The US core consumer price index – which strips out volatile energy and food prices and is closely watched by market participants and central banks – increased 0.3% in August when compared with the previous month. That was the first month-on-month acceleration a half of a year. The data was difficult to interpret, however, as core CPI slowed to 4.3% – its lowest rate in nearly two years – when compared with the same month a year earlier. Overall CPI – which includes food and energy – rose 0.6% on the month and 3.7% from a year ago, which is still much higher than the Fed’s 2% inflation target. Fed officials will take the data into consideration at their monetary policy meeting next week.
In New York, stock indices couldn’t agree on a direction on Wednesday. The Dow Jones Industrial lost 0.2% and the S&P 500 ended the session up 0.1%. The Nasdaq-100 gained 0.4%. In individual stocks, Citigroup shares gained 1.7% after the bank announced job cuts and said it will cut out an entire management layer on Wednesday.
In the Asia-Pacific region, stock markets were mostly higher on Thursday, with Chinese markets putting a drag on regional gains. In Tokyo, the Nikkei 225 was leading Asian gains, up 1.5% despite industrial production coming in at a 1.8% month-on-month decline for July. In South Korea, the Kospi wasn’t far behind, trading more than 1% higher. Australia’s S&P/ASX 200 was trading 0.5% higher on Wednesday, after the country’s unemployment rate remained unchanged at 3.7% in August. Hong Kong's Hang Seng Index was down 0.2%, while the Shanghai Composite lost 0.1%.
Market participants are eagerly awaiting the ECB’s next move, unsure what to expect from its monetary policy announcement on Thursday. Within the course of a few days the sentiment has shifted toward expecting a rate hike of one quarter of a percentage point. Just days earlier, investors were evenly split between a hike and a pause in the rate hiking cycle. The central bank will choose between focusing on taming inflation, which is still more than twice as high as its 2% target, and supporting a weak euro area economy, which the European Commission expects to only grow 0.8% during 2023.
On Wednesday, the British pound hit a three-month low after data showed gross domestic product in the UK dropped by 0.5% in July. The data set off fears that the UK could fall into recession, putting the Bank of England in a hard place as it tries to tame inflation that has only slowly been coming down from last year’s double-digit rates.
Corporate news in focus: Adobe Q3 figures.
Economic data in focus: Swiss Producer and Import Price Index (08:30 CET), European Central Bank interest rate decision (14:15), US retail sales (14:30), US weekly initial jobless claims (14:30), US Producer Price Index (14:30).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.