14 Sep

Inflationary pressure persists in the US. The EU plans to introduce an electricity consumption norm

September 14, 2022

By JustForex

Inflationary pressures in the United States failed to decline significantly last month, despite falling gas prices. This is a sign that the Federal Reserve still has much work to do to restore price stability and provide long-term relief to US households. According to the US Bureau of Labor Statistics, the Consumer Price Index increased by 0.1% on a seasonally adjusted basis after stabilizing in July, exceeding consensus forecasts. On an annualized basis, the consumer price index fell to 8.3% from 8.5%. Economists polled by Bloomberg had expected inflation to fall to 8.1%. Core inflation (excluding food and energy prices) rose by 0.6% last month. On an annualized basis, core inflation rose from 5.9% to 6.3%.

Treasury bond yields jumped sharply after the CPI data, with the two-year rate soaring 21 basis points to about 3.78%, the highest level since October 2007. The yield on the benchmark 10-year bond increased by 10 basis points to 3.46%, while the dollar strengthened against major currencies and US stocks fell. S&P 500 stocks fell the hardest as high-priced stocks suffered from a sharp rise in US Treasury yields.

As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 3.94%, and the S&P 500 Index (US500) lost 4.32%. The NASDAQ Technology Index (US100) decreased by 3.53% on Tuesday.

According to analysts, the Fed is going to raise rates another 75 basis points next week, and the question is, will the Fed eventually raise rates to 4.5% or higher? This is keeping the whole market in suspense since rates are still low with this inflation.

Despite the widespread market expectation of a further 75 basis point hike, Prince – a global economist and advocate of economic reform – said the Fed would likely deviate from its hawkish trajectory in three steps as the gap between wealthy investors and institutions and the “real economy” widens. By first reducing the rate hikes to 50 basis points and then neutralizing policy, Prins expects the Fed to begin to reverse course as the US has posted two consecutive quarters of negative GDP growth.

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Equity markets in Europe also fell yesterday. German DAX (DE30) fell by 1.59%, French CAC 40 (FR40) decreased by 1.39%, Spanish IBEX 35 (ES35) lost 1.59%, British FTSE 100 (UK100) closed down by 1.17%.

The Dutch Cabinet plans aid for energy bills. One million households in the Netherlands are facing financial problems due to rising energy prices. About 600,000 of these households have never experienced financial difficulties before. Now, these households have had to deal with debt counseling to get rid of these debts, which will cost the government dearly.

Germany’s Consumer Price Index was 7.9% annually, after 7.5% in July. The inflation rate has been above 7% for over six months. The main reason for the high inflation is still an increase in energy and food prices. The German economy minister Habek said yesterday that Germany would have to go into recession next year. Spain’s annual inflation rate has fallen from 10.7% to 10.5%.

The European Union wants to cap revenues from cheaper power producers; impose an excess profits tax on fossil fuel companies, and impose mandatory consumption cuts. Commission President Ursula von der Leyen’s plans have yet to be finalized and eventually approved by other states, and there are deep divisions over how to deal with the crisis. Already, the most controversial idea – limiting the price of imported Russian gas – has been postponed until further negotiations.

Oil prices fell nearly 1% on Tuesday, reversing earlier gains. US Consumer Prices unexpectedly rose in August, giving the US Federal Reserve another chance to raise interest rates sharply next week.

Asian markets were trading higher yesterday. Japan’s Nikkei 225 (JP225) gained 0.25%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.18%, and Australia’s S&P/ASX 200 (AU200) ended Tuesday up to 0.65%.

S&P 500 (F) (US500)  3,932.69 −177.72  (−4.32%)

Dow Jones (US30) 31,104.97 −1,276.37 (−3.94%)

DAX (DE40) 13,188.95  −213.32 (−1.59%)

FTSE 100 (UK100) 7,385.86 −87.17 (−1.17%)

USD Index 109.89 +1.57 (+1.45%)

Important events for today:
  • – Japan Industrial Production (m/m) at 07:30 (GMT+3);
  • – UK Consumer Price Index (m/m) at 09:00 (GMT+3);
  • – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
  • – US Producer Price Index (m/m) at 15:30 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

By JustForex

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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