Inflationary pressures in the United States eased markedly in October. At 3.2%, the inflation rate in October was even lower than expected. Core inflation also fell slightly. This seems to justify the Fed's recent pause on interest rates. This led to relief and rising prices on the stock markets. At the same time, the yield on ten-year US government bonds fell sharply on Tuesday from around 4.6% to 4.44%.
US inflation eased more than expected in October. Consumer prices rose 3.2% year-on-year last month. On average, economists had expected inflation to fall to 3.3% from 3.7% in September. On a month-on-month basis, prices were unchanged, with analysts expecting a rise of 0.1%. Core inflation, which excludes energy and food prices, was 4.0% in October, down from 4.1% the previous month. The Federal Reserve is likely to see this as confirmation that it should hold off on further rate hikes for the time being, but the persistently high core inflation suggests that the euphoria may be misplaced.
As inflationary pressures eased and the likelihood of further Fed rate hikes diminished, the Dow Jones Industrial climbed 1.43% on Tuesday to 34,827.70, its highest level in two months. The S&P 500 rose 1.91% to 4,495.70 and the Nasdaq technology index was up over 2%. While US Treasury yields fell sharply, the US dollar lost ground across the board.
In the Asia-Pacific region, most stock indices were higher. In Hong Kong, the Hang Seng Index rose 3% to its highest level in more than a week, while in mainland China the CSI 300 Index gained 0.6%. The latest economic data from China provided a positive boost. Chinese retail sales rose 7.6% year-on-year last month, beating expectations. Industrial production rose by 4.6% for the year in October (consensus 4.4%). Today, US President Joe Biden and Chinese President Xi Jinping will meet face-to-face in San Francisco for the first time in around a year. In Tokyo, the Nikkei 225 was up 2.6% and the Topix was up 1.3% for the day, its highest level in almost two months. South Korea's Kospi was up 1.9% today and in Australia the S&P/ASX 200 closed up 1.4% at an eight-week high.
Thomas Jordan, Chairman of the Swiss National Bank (SNB), stressed that the SNB would not hesitate to tighten monetary policy further if necessary because price stability is not yet guaranteed. The SNB will assess whether the measures taken so far are sufficient to keep inflation within the price stability range in the long term, Mr Jordan said at a conference yesterday.
Corporate news in focus: Siemens Energy and Infineon with annual figures, Alstom Q3, Renault and Diageo capital market day and Cisco Systems with Q1 figures.
Economic data in focus: France unemployment rate Q3 (07:30), UK consumer prices October (08:00), Germany wholesale prices October (08:00), France consumer prices October (08:45), Italy consumer prices October (10:00), Eurozone industrial production and trade balance September (11:00), USA retail sales and producer prices October and Empire State industrial index November (14:30), Russia GDP Q3 (17:00).
All about global economic and market trends at a glance
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
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