Global markets displayed a mixed yet hopeful stance as US consumer price inflation exhibited moderation in July, sparking optimism about the potential end of the Federal Reserve’s rate hike cycle. Despite this, investor prudence persisted, given pending data that could influence the Fed’s decisions.
The Labor Department’s report revealed a 0.2% rise in the consumer price index (CPI) for the past month, pushing the annualized rate to 3.2% from June’s 3%. Although slightly below projections, economists polled by Reuters anticipated a modestly higher increase of 3.3%.
Notably, the core CPI, excluding volatile food and energy prices, experienced a minor slowdown, falling to 4.7% in July from the previous month’s 4.8%. Russell Price, Chief Economist at Ameriprise Financial, highlighted the report’s alignment with the Federal Reserve’s objectives.
He noted a reduction in pressures in sectors such as travel and automotive prices, indicating several months of moderation. The housing component, a significant index factor, also continued to decelerate gradually.
Despite inflation easing from its peak of 9.1% in June 2022 and nearing the Fed’s 2% target, investors remained cautious. Pending data releases, including another CPI report and jobs data, are pivotal factors in shaping the Fed’s September decisions.
Brad Bechtel, Global Head of FX at Jefferies, emphasized the need for comprehensive evaluation, implying that this single report may not decisively sway the Fed’s direction.
A Snapshot Post-U.S. Inflation Report
The initial reaction in major Wall Street stocks was robust, echoed by significant European indices. Treasury yields retraced slightly, relieving pressure on gold prices, while the dollar maintained relative stability. Brad Conger, Deputy Chief Investment Officer at Hirtle Callaghan & Co, highlighted the prevailing sentiment among the Federal Open Market Committee (FOMC) doves advocating for a rate hike pause.
Internal FOMC disagreements have prompted a cautious stance, prioritizing data collection before decisive actions. MSCI’s global stock performance indicator gained 0.38%, and the pan-European STOXX 600 index rose 0.79%.
Meanwhile, overnight Asian stocks grappled with concerns as China’s deflation and the US. technology investment ban weighed on post-pandemic recovery sentiment. China reported consumer-price deflation and further factory-gate price declines.
Oil prices experienced a dip, with Brent crude hovering near January highs. Speculation about another Fed rate hike subsided post-inflation data, bolstered by OPEC’s positive oil demand outlook. US. crude futures dropped to $82.82 a barrel, and Brent settled at $86.40, down from $1.15.
Gold prices exhibited a minor increase following the U.S. inflation report, suggesting the potential conclusion of the Fed’s rate hike cycle. US gold futures settled slightly lower at $1,948.90 an ounce.
Source: Yahoo Finance