Yesterday, financial markets were focused on the U.S. Consumer Price Index. Forecasts indicated an increase in inflation for August compared to the previous month, primarily due to rising fuel prices and robust consumer spending. An uptick in U.S. inflation would provide further impetus for the Federal Reserve to consider an interest rate hike. Stock markets posted gains as investors reacted to August’s core inflation data, which came in hotter than expected.
The Dow Jones Industrial Average fell by 70 points, or 0.2%, while the S&P 500 recorded a 0.12% increase, and the Nasdaq Composite advanced by 0.29%. Tesla shares closed flat after billionaire investor Ron Baron reiterated his optimism about the electric vehicle manufacturer. Other large-cap technology stocks saw significant gains, including Amazon, which rose by over 2%. Microsoft and the parent company of Facebook, Meta, all closed higher.
August’s core inflation, as measured by the Consumer Price Index, increased by 0.3%, surpassing expectations of 0.2%, and rose by 4.3% on an annual basis, in line with forecasts. At the same time, key inflation data increased by 0.6% compared to the previous month and by 3.7% on an annual basis. Dow Jones economists had forecasted 0.6% and 3.6%, respectively, confirming the markets’ ongoing focus on the Federal Reserve’s inflation management. Federal Reserve policymakers pay particular attention to these core data as they offer a better indication of long-term inflation trends.
The sharp increase in gasoline prices significantly contributed to August’s inflation, with a 10.6% increase compared to the previous month. Gasoline was the primary driver of price increases, accounting for over 50% of the Consumer Price Index. The national average price was $3.85 per gallon. Wall Street widely anticipated a pause in interest rate hikes during the upcoming Federal Reserve meeting. According to the CME’s FedWatch Tool, futures pricing data for Fed funds indicated a 97% probability of rates remaining unchanged starting Tuesday evening.
Attention is now significantly focused on the performance of inflation in the services sector, a crucial element of the economy. Prominent Chinese private real estate developer, Country Garden, has recently garnered renewed interest following creditors’ approval to extend the payment period of six bonds to three years. This decision has provided relief to bond investors, while the financial sector seeks to discern whether the Chinese government’s recent economic stimulus measures, such as reducing interest rates on existing mortgages and offering preferential loans for first-home purchases in major cities, will be sufficient to restore consumer confidence and lay the foundation for a future real estate market recovery.
Country Garden Holdings’ shares fell by 4.55% the previous day after rebounding when some bondholders approved extending payments for three years, thus avoiding default. Meanwhile, the Nikkei index appears to be recovering after three weeks of losses. The Nikkei was weighed down by comments from the Governor of the Bank of Japan, Kazuo Ueda, who stated that the central bank’s 2% inflation target is achievable. This could lead the BoJ to move away from nearly a decade of negative interest rates. Ueda’s suggestions about abandoning negative interest rates did not impact the Treasury, which conducted a five-year bond auction, with ¥2.498 trillion issued at 0.291%.
Wednesday, September 13, 2023 Market Indices:
- DOW Jones: -0.20% at 34,575.53
- S&P 500: +0.12% at 4,467.44
- NASDAQ Composite: +0.29% at 13,813.58
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