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US inflation continues to weaken, but remains (too) high at its core - ECB interest rate decision in focus

The cost of living in the United States rose less sharply in August than in the previous month. The continuing decline in inflation should open the door for the Federal Reserve (Fed) to cut interest rates. However, in view of persistently stubborn core inflation, it remains questionable whether the rate cut will go beyond a "normal" level of 25 basis points. Before the Fed’s eagerly awaited interest rate decision next week, the ECB is very likely to cut interest rates again today.

Data: 12 settembre 2024
Autore: Alessandro Fezzi, LGT Research Content & Publications
Tempo di lettura: 5 minuto

Inflation in the US cooled further in August. Consumer prices rose by 2.5% compared to the same period a year earlier. In July, the inflation rate was still 2.9%. Inflation in the world's largest economy has therefore fallen to its lowest level since February 2021. On a monthly basis, consumer prices rose by 0.2% as expected. However, the annual core inflation rate, i.e. excluding the often volatile energy and food prices, remained unchanged at 3.2% in August, as expected. The Fed is therefore likely to be on the verge of the expected interest rate turnaround, although the extent of the easing - 25 or 50 basis points - remains uncertain in view of the persistently high core inflation rate.

Technology stocks benefit from prospect of interest rate turnaround

Following the latest US inflation data, investors on the New York Stock Exchange appear to be assuming a more "timid" interest rate turnaround by the Fed. In an initial reaction, the indices fell, but were then able to recover by the end of trading. The Dow Jones Industrial ended Wednesday at 40,861.71 points with a daily gain of 0.3%. The S&P 500 gained a good 1% to 5554.13 points and the Nasdaq indices even rose by more than 2%, driven by gains in companies such as Nvidia, ASML and Applied Materials, which were up between 4-8%. Following the publication of US inflation data, the US dollar appreciated slightly against the euro, while the yield on ten-year US government bonds rose slightly to 3.65%.

ECB about to cut interest rates again

The European Central Bank (ECB) is expected to announce a further easing of its monetary policy at 14:15 (CET) today. This would be the ECB's second step before the Federal Reserve is expected to initiate its interest rate turnaround next week. The capital markets are expecting the ECB to cut interest rates by 25 basis points. The background to this is the further decline in inflation in the eurozone. The rate of inflation in the eurozone fell to 2.2% in August from 2.6% in the previous month, the lowest level in three years. The press conference by ECB President Christine Lagarde will be followed with great interest.

Asia's stock markets follow positive cues from the US

Asian-Pacific stock markets opened higher on Thursday, following the gains on Wall Street. The Nikkei 225 rose by 2.8% and the broad-based Topix gained 1.9%. Looking at Japan's economy, the Japanese producer price index rose 2.5% year-on-year in August, less than the expected 2.8% and the 3% reported in the previous month. The data is one of the key indicators closely watched by the Bank of Japan. The central bank has signaled that it intends to raise interest rates further in the coming months. In South Korea, the Kospi gained 1.4% and the small-cap Kosdaq rose 2.5%. In Hong Kong, the Hang Seng Index gained 0.8%. Interest was generated by the planned IPO of Chinese household appliance manufacturer Midea Group, which is likely to be the largest IPO in Hong Kong since May 2021. The CSI 300 from mainland China was little changed. The Australian S&P/ASX 200 rose by 0.6%.

British economy lacks momentum in summer

The summer slump continued in the UK in July. According to the latest data from the ONS statistics office in London, GDP stagnated month-on-month, as it did in June. Economic performance in industry and the construction sector was negative. Economists had forecast growth of 0.2% for July compared to the previous month. Nevertheless, the British economy expanded by 0.5% in the second quarter compared to the previous quarter.

Corporate and economic calendar

Corporate news in focus: Baloise Q2 and Adobe Q3.

Economic data in focus: Consumer prices in Spain and Sweden, ECB interest rate decision and press conference, US producer prices and initial jobless claims.

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Global market and economic developments at a glance

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Publisher: LGT Bank (Switzerland) Ltd, Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd

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