US Consumer Inflation Holds at Moderate Level, Stock Markets Rise
Stock markets experienced a boost on Thursday following the release of highly anticipated data showing that US consumer inflation had slightly increased but remained at a moderate level. These figures come amidst concerns that the Federal Reserve could announce another interest-rate hike before the end of the year.
While oil prices took a dip due to profit-taking, they had previously reached multi-month highs on concerns about Russian supplies following a Ukrainian attack on one of their tankers. However, analysts noted that output cuts by Moscow and OPEC’s Saudi Arabia were providing strong support to the market.
The positive sentiment that characterized much of July has given way to uncertainty about the plans of the US central bank, with policymakers warning that more actions are needed to bring prices under control. Furthermore, the ongoing weakness in China’s economy, coupled with a lack of concrete action by authorities to address it, has taken a toll on investor sentiment, leading to a retreat in global markets in recent weeks.
Traders eagerly awaited the release of the government’s data, which revealed that the consumer price index (CPI), a key inflation gauge, increased by 3.2 percent from the previous year. This marked a rise from June’s 3.0 percent pace and ended a streak of cooling figures. The CPI plays a crucial role in the Fed’s decision-making on monetary policy, as interest-rate hikes have helped temper high prices in the US since reaching a four-decade high of 9.1 percent in June 2022. However, the central bank still aims for an inflation rate of two percent.
Richard Flax, the chief investment officer at digital wealth manager Moneyfarm, viewed the latest US inflation reading as slightly better than expected. He noted that while previous inflation drivers in 2022 were due to supply chain bottlenecks and the war in Ukraine, the current drivers appear to be more temporary. Flax also added that the probability of a Fed rate rise has decreased following this data.
While all three main indices on Wall Street closed in the red on Wednesday, dragged down by tech firms, US stocks rose in early trading on Thursday. Similarly, Europe’s main markets mostly experienced solid gains.
Investors are keeping a close eye on China, hoping for measures to support its ailing economy. The news that China slipped into deflation for the first time in over two years and experienced a significant plunge in exports has raised concerns about possible spillover effects. Additionally, there is a level of nervousness surrounding President Joe Biden’s executive order, which restricts certain US investments in China’s sensitive high-tech sectors, such as semiconductors, quantum computing, and artificial intelligence. Beijing criticized the move, claiming that it severely disrupts the security of global industrial and supply chains.
In summary, stock markets rose as US consumer inflation remained at a moderate level. Oil prices experienced a dip, while concerns about China’s economy continue to impact investor sentiment. The government’s data showed a slight increase in the consumer price index, playing a crucial role in the Fed’s decision-making on monetary policy. The prospects of a Fed rate rise have decreased, and investors are also keeping a watchful eye on China’s economy and US restrictions on certain investments.
