US inflation rate slows less than expected

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

The Dow Jones was down 60 points recovering from more than 200 points fall on Tuesday, while the S&P 500 and Nasdaq 100 turned green and added 0.1% and 0.5%, respectively, experiencing a volatile session as investors were digesting the latest US inflation data while reassessing the outlook for monetary policy. This wave of volatility in equity markets came after the closely watched US CPI reading for January landed at 6.4%, the lowest since October 2021, still above economists’ forecast of 6.2%. Meantime, European equity markets also closed mixed yesterday, with the benchmark Euro Stoxx 50 ending practically flat at 4,239 points. 

Summary as at 15.02.2023 

• Asian equity markets fell on Wednesday as investors assessed the impact of Kazuo Ueda’s nomination as the next BOJ governor, as well as the PBOC’s decision to add more cash into the financial system and keep its 1-year MLF rate unchanged at 2.75%. Shares in Australia, Japan, Hong Kong and China all declined. 
• European shares are primed for losses and US equity futures eased on Wednesday as traders mull mixed central bank commentary. 
• Oil prices were down for a second day this morning after an industry report showed US crude inventories jumped by 10.5 million barrels last week, much higher than market forecasts for a 321,000-barrel increase. On Tuesday, oil prices came under pressure after the US government announced plans to release an additional 26 million barrels of oil from strategic reserves. Supply worries also eased after the EIA said it expected record March production from the seven largest US shale basins. 
• The annual inflation rate in the US slowed only slightly to 6.4% in January from 6.5% in December, less than market forecasts of 6.2%. Still, it is the lowest reading since October 2021. A slowdown was seen in food prices while the cost of used cars and trucks continued to decline. In contrast, the cost of shelter increased faster as well as energy. Although inflation has shown signs of peaking at 9.1% in June last year, it remains more than three times above the Fed’s 2% target and continues to point to a broad-based advance on the general price level, particularly services and housing. Compared to December, CPI rose 0.5%, the most in three months, mostly due to the higher cost of shelter, food, gasoline, and natural gas. 
• Several Federal Reserve officials yesterday stressed the need that interest rates may have to move to a higher level than anticipated to ensure inflation continues to ease. Richmond Fed President Thomas Barkin said that “if inflation persists at levels well above our target, maybe we’ll have to do more,” while Philadelphia Fed President Patrick Harker said he believes policymakers will need to raise interest rates above 5% and possibly higher to counter inflation. 
• The European Central Bank governing council member Gabriel Makhlouf said the bank could increase interest rates above 3.5% and likely will not cut them again this year as it moves forcefully to bring inflation back to target. 
• The European Union is posed to force banks to report information on Russian Central Bank assets as part of the bloc’s latest sanctions package targeting Moscow for its war in Ukraine. Getting a handle on the scale of the central bank and other sanctioned state-backed assets that have been immobilised in the EU is seen as a first step to exploring options for potentially using those funds to contribute to Ukraine’s reconstruction. 
• Airbnb on Tuesday posted its first annual profit, boosted by an increase in cross-border travel during Q4 over previous years. Meanwhile, TripAdvisor Inc. posted a surge in revenue in its latest quarter amid strong demand for city tours and hotel stays as the travel market continues to recover. Shares of both companies jumped 10% in extended trading yesterday. On similar lines, holiday day group TUI reported yesterday more bookings and higher Q1 revenue. 
• Warren Buffett slashed his holding of Taiwan Semiconductor Manufacturing Co. just months after disclosing a major stake, an unusually quick reversal that’s chilling investor sentiment toward the chip giant. Buffett’s Berkshire Hathaway cut its holding of TSMC’s ADRs by 86% last quarter, according to the latest filing. TSMC shares slid as much as 4% in Taipei following the news.    
• Air India Ltd. Ordered 470 jets from Boeing Co. And Airbus SE, marking the largest deal for commercial aircraft in aviation history. The airline said it has agreed to purchase 250 Airbus jets and 220 Boeing planes, surpassing a deal for 460 planes by American Airlines in 2011. The deal is aimed at providing more planes to supply India, which is expected to be the fastest-growing major aviation market in the world. 
• European Union lawmakers approved a law that will effectively ban the sale of new gasoline- and diesel-powered cars in the bloc from 2035, one of the most aggressive moves yet by a major economy to accelerate the transition to electric vehicles.