A tighter labor market and lower jobs opening shows that inflation pressure continue. Companies are adopting a cautious before the Fed’s September meeting.
After a strong rebound this year on Wall Street, the month of August has proved to be the worst so far in 2023. However, on Wednesday, August 30, global equities market edged up with data suggesting that the US inflation pressures were moderating.
MSCI’s most comprehensive global stock index (.MIWD00000PUS) increased by 0.2%, following positive trends in Asia that were influenced by China’s efforts to enhance investment in its struggling stock market. Additionally, the previous day’s disappointing US employment data raised expectations that the Federal Reserve might halt its rate hikes.
According to the market data, MSCI’s worldwide stock index has experienced a decline of over 3% during August. Thanks to the hawkish signals stemming from the Federal Reserve’s recent meeting minutes and Chair Jerome Powell‘s speech on Friday during the Jackson Hole central bankers’ symposium.
European shares inched up on Wednesday (.STOXX), while an index of Asian shares increased by 0.35% (.MIAPJ0000PUS), and Japan’s prominent Nikkei index reached its highest point in more than two weeks (.N225).
On Tuesday, Wall Street equities experienced a robust surge, leading to significant gains across all three major stock indices. Notably, data revealed that US job openings had declined to their lowest level in nearly 2.5 years in July. This suggested that inflation pressures were emerging due to a tight labor market and that companies were adopting a cautious approach ahead of the Federal Reserve’s meeting scheduled for September 19. In a note to clients, SEB Group US economist Elisabet Kopelman said:
“The US labour market is moving towards better balance, increasing prospects for the Fed to achieve a soft landing for the economy.”
Europe on the Edge
In the early hours of trading, Europe’s Stoxx 600 share index (.STOXX) remained stable as investors evaluated inflation reports from Spain and Germany.
Spanish inflation for August recorded a 2.6% increase, aligning with the expectations of economists surveyed by Reuters. In Germany’s largest state, North Rhine Westphalia, consumer prices saw a 0.5% month-on-month rise and a 5.9% year-on-year increase in August.
Economists surveyed by Reuters anticipate that the headline eurozone inflation rate has eased to 5.1% in August from July’s 5.3%, although it remains well above the European Central Bank’s (ECB) target of 2%.
The eurozone’s inflation has surpassed the target for two consecutive years. Nonetheless, Barclays’ Chief European Economist Sylvia Ardagna suggests that as economic challenges intensify, the ECB may consider halting an extended cycle of interest rate increases. “The (monetary) tightening cycle is now complete if the growth slowdown pointed to by high-frequency indicators is confirmed,” Ardagna said.
This week’s US consumption and payroll data will provide a clear picture of what could be the Fed’s stand going ahead. At present, the markets are indicating an 87% probability of the Federal Reserve maintaining its current stance at the upcoming meeting next month, according to the CME FedWatch tool. The likelihood of another halt at the central bank’s November meeting has increased from 38% to 51% earlier this week.
The primary rate of US inflation, which stands at 3.2% over the twelve months leading to July, is also moving closer to the Federal Reserve’s target of approximately 2%. This shift has occurred subsequent to the central bank’s influential decision to raise rates by 525 basis points (bps) since March 2022.
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