Inflation in the US slowed in April in a sign that the US Federal Reserve (Fed) may soon pause its current hiking cycle. Equity markets reacted somewhat positively with tech stocks coming out on top Wednesday.
The US Consumer Price Index (CPI) increased 4.9% in April when compared with the same month a year earlier, continuing the falling trend in place for nearly a year. It was the first increase of less than 5% in two years. Core CPI – which ignores volatile food and energy price swings – also fell slightly to 5.5% in April from 5.6% in March. CPI peaked at 9% in July. The cooling inflation data may be just what the Fed needs to pause its current interest rate hiking cycle. Last week the Fed raised interest rates by one quarter of a percentage point and signalled it may pause further hikes after 10 consecutive rate increases. That would provide the central bank with time to assess the effects of higher rates on the real economy and financial sector.
Tech stocks stole the spotlight in New York trading following the CPI data on Wednesday. The tech-heavy Nasdaq-100 gained 1.11% to finish the day at 13,347.83 points. The other major indices in New York couldn’t keep up with the pace, with the Dow Jones Industrial gaining 0.45% to end the day at 33,531.33 points and the S&P 500 closing slightly lower at 4,137.64 points.
In Europe, consumer prices in Germany increased by 7.1% in April when compared to the same month a year earlier. That’s down from 7.4% in March. The final German CPI reading for April showed that core CPI was up 5.8%, the same as in the previous month. Core inflation has been steadily increasing for months, underscoring concerns about price increases by European Central Bank (ECB) officials. ECB President Christine Lagarde said in an interview published Wednesday that the central bank still has more ground to cover to get prices back to its 2% target. Her concerns were echoed by Bundesbank President Joachim Nagel, who said on Wednesday that the bank is not done with its current hiking cycle. The ECB increased interest rates by 25 basis points last week, a slower pace than the three previous hikes of 50 basis points.
Swiss National Bank Chairman Thomas Jordan made comments similar to those of his ECB colleagues on Wednesday. Jordan said the Swiss central bank also cannot rule out further interest rate hikes, noting current monetary policy was not restrictive enough to keep inflation under control. Data released Friday showed Switzerland’s inflation rate dropped to 2.6% in April year-over-year, higher than the central banks 2% target, but much lower than in neighbouring EU countries.
In Asia, markets traded mixed. In mainland China, the Shanghai Composite was down slightly, and the Shenzhen Component was trading marginally in positive territory. Hong Kong’s Hang Seng Index fell about 0.5%, while the Hang Seng Tech Index followed tech gains out of the US, jumping 1.5%. Japan’s Nikkei was trading marginally lower and South Korea’s Kospi gained 0.19%.
Corporate news in focus: Quarterly figures from Swiss Life, Merck KGaA, ThyssenKrupp, Bayer. Annual general meetings at SAP, BMW.
Economic data in focus: UK Q1 GDP (08:00 CET), Bank of England interest rate decision (13:00), US producer prices (14:30), weekly US initial jobless claims (14:30).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.