US price data revives rate hike jitters

The S&P 500 Index and Nasdaq Composite fell Thursday, ending what had been a four-day winning streak, as an unexpectedly strong inflation report and rising Treasury yields took their toll. The Dow slid 0.5% while the S&P 500 and the Nasdaq each fell over 7%. Sentiment was slashed as expectations of another interest rate hike later in the year increased after a CPI report indicated higher-than-expected inflation. Swap contracts linked to future Federal Reserve rate decisions had led to an increase in the probability of another quarter-point hike in December, pushing the odds back up to about 50%, up from closer to 30% the day before. In Europe, equity markets also closed lower, albeit losses were much more contained, with the DAX down 0.2% and the Euro Stoxx 50 declining by a mere 0.1%. 

Summary for 13.10.2023 

• Asian shares slid on Friday, breaking a winning streak after US consumer prices increased more than expected, bolstering the case for the Federal Reserve to keep rates higher for longer. Investors also assessed data showing China’s consumer inflation was unexpectedly flat in September, while producer inflation dropped the least in six months. Shares in Australia, Japan, South Korea, Hong Kong and mainland China all declined. 
• European shares are headed for a cautious start as investors mull soft economic data from China and higher Treasury yields. Elsewhere, US equity futures held steady this morning as the market look ahead to corporate earnings reports from big banks, with JP Morgan, Wells Fargo and Citigroup set to release their latest quarterly results later in the day. 
• Oil prices rose this morning, reversing losses from the previous session amid persistent supply-side concerns. On Thursday, the US imposed the first sanctions on owners of tankers carrying Russian oil priced above the G7’s price cap of $60 per barrel to enforce measures meant to punish Russia for the invasion of Ukraine. OPEC also said it expected global crude stockpiles to decline by 3 million barrels per day this quarter barring further supply disruptions from the Israel-Hamas war. 
• China’s exports and imports shrank at a slower pace for a second month in September, customs data showed on Friday. Outbound shipments declined 6.2% from a year ago, following a drop of 8.8% in August, and beating economists’ forecasts for a 7.6% fall. Meantime, imports were down 6.2%, missing the 6.0% decline expected by economists but was still better than a 7.3% contraction in August. 
• China’s consumer prices faltered, and factory-gate prices shrank slightly faster than expected in September, with both indicators showing persistent deflationary pressures in the world’s second-largest economy. The consumer price index was unchanged in September from a year earlier, missing the forecast of a 0.2% gain. Meantime, the producer price index fell 2.5% from a year earlier, the 12^th straight month in negative territory though the pace of decline slowed from August. 
• China is considering creating a state-backed stabilisation fund to shore up confidence in its equity markets, Bloomberg News reported on Thursday. The plan calls for the fund to have access to total capital of up to hundreds of billions of yuan, the report said, adding that implementation details have not been finalised and there could be a chance the proposal will be scrapped. 
• The US inflation rate remained steady at 3.7% in September, defying market expectations of a slight decrease to 3.6%, as a softer decline in energy prices offset slowing inflationary pressures in other categories. The core CPI slowed to 4.1%, marking its lowest reading since September 2021. On a monthly basis, consumer prices advanced by 0.4%, easing from a 0.6% gain in August but exceeding market expectations of 0.3%, while the core rate remained unchanged at 0.3%. 
• ECB members were divided on the decision to either raise interest rates or pause the current tightening cycle, considering this choice a close call, with tactical factors influencing their decision, the minutes from the most recent ECB meeting showed. Officials expressed concerns that pausing for the first time in over a year could be perceived as a sign of the ECB’s weakening resolve and might lead to speculation that the tightening cycle was coming to an end, which, in turn, would increase the risk of a resurgence in inflation. Nonetheless, some members favoured keeping rates unchanged, saying the economy had significantly weakened, and inflation was expected to return to around 2% by the end of the projection horizon. 
• Shares of Delta Air Lines retreated by 2.3% yesterday after the release of its quarterly results as its outlook for demand apparently failed to impress. 
• Domino’s Pizza all fell by 1.1% after the company posted mixed third-quarter results, with earnings above expectations and revenue slightly below estimates. 
• Walgreens Boots Alliance rose 7% in Thursday’s session, leading Dow gainers, after the pharmacy chain said it had made progress cutting costs despite reporting an earnings miss.