Labour costs in the US were still increasing at a strong pace in the third quarter, data released Tuesday showed, despite the most aggressive monetary policy by the Federal Reserve (Fed) in decades. The Fed is expected to keep its policy rate unchanged between 5.25% and 5.5% on Wednesday and repeat the narrative that leaving rates high enough for long enough should bring down inflation to its 2% target.
The Employment Cost Index, which measures labour costs in the US, increased by 1.1% in the third quarter, a faster pace than the 1.0% gain in the second quarter. When compared to the same period a year earlier, labour costs were up 4.3% in the third quarter. Wages were up 1.2% compared with the previous quarter, or 4.6% on a year-on-year basis. The solid wage growth has supported consumer spending, which has kept the US economy chugging along this year at a faster pace than many had expected.
The Conference Board Consumer Confidence Index, which was also released Tuesday, showed consumer sentiment slipping a bit, but still at a moderately high level of 102.6 in October, down from 104.3 the previous month. It was the third consecutive month of decline, but the pace of the decline is likely slower than Fed officials would like to see as they look to reduce consumer spending and bring inflation down.
On the other side of the Atlantic, the European Central Bank (ECB) appears to be making some progress in its fight against inflation after a record of ten consecutive interest rate hikes. Euro area inflation decelerated to 2.9% in October, much lower than the 4.3% of the previous month. Core inflation - which strips out food and energy prices - was more stubborn, however, and fell to just 4.2% from 4.5% in September. That is still more than twice as high as the ECB’s target of 2% inflation. The central bank kept rates unchanged last week, noting its monetary policy was having an effect on prices.
The ECB also has to be careful not to tighten financial conditions to the point that it risks recession in the euro area. Gross domestic product in the bloc fell by 0.1% in the third quarter, data released Tuesday showed. The bloc’s largest economy, Germany, also contracted by 0.1% in during the quarter. The Euro Stoxx 50 ended Tuesday’s session 0.8% higher and Germany’s DAX gained 0.6%.
Stocks in Europe and on Wall Street continued to rally to end the month, ignoring a potential expansion of the conflict in the Middle East. Yemen’s Houthis entered the conflict saying they launched drones and missiles at Israel. A wider conflict in the region could particularly influence key oil passages and oil prices. The Dow Jones Industrial increased 0.4% on Tuesday and the S&P 500 closed 0.7% higher. The Nasdaq-100 gained 0.5%.
In the Asia-Pacific region, all eyes were on Japan after the Bank of Japan (BoJ) intervened in the government bond market on Wednesday to stop a spike in yields. The jump in yields to decade highs closing in on 1% came a day after the central bank tweaked the wording of its yield curve control policy. The yield on ten-year Japanese government debt retreated after the BoJ announced emergency bond purchases. In currencies, Japan’s vice minister of finance for international affairs, who oversees yen currency fluctuations, said the nation is on alert and ready to act after a series of recent sharp moves in the yen.
Stock markets in the region were trading higher with Japan’s Nikkei 225 leading the gains at +2.4%. In South Korea, the Kospi was up 1% after data showed the nation’s exports increased by more than 5% in October. In Australia, the S&P/ASX 200 ended the day up 0.9%. In China, the private Caixin/S&P Global manufacturing PMI showed Chinese industry activity slipping into contraction in October, just one day after the official data showed the same. Hong Kong's Hang Seng Index was trading marginally higher, while the Shanghai Composite gained 0.2%.
Corporate news in focus: Quarterly figures from Toyota, Skanska, GlaxoSmithKline, Kraft Heinz, Costco, Airbnb, PayPal, Qualcomm, Electronic Arts, and Barry Callebaut with full-year figures.
Economic data in focus: Swiss Manufacturing Purchasing Managers’ Index (09:30 CET), US ADP National Employment Report (13:15), SNB Chairman Thomas Jordan speaks (13:40), US ISM Manufacturing PMI (15:00), JOLTS jobs report (16:00), weekly US EIA Petroleum Status Report (16:30), US Federal Reserve interest rate decision (19:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.