Japan’s GDP contracted in the third quarter. The UK has seen inflation fall sharply

By JustMarkets

Stocks rose sharply on Tuesday and bond yields were down after US consumer prices fell more than expected in October, reinforcing expectations that the Fed will maintain its pause. As of Tuesday’s stock market close, the Dow Jones Index (US30) was up by 1.43%, while the S&P 500 Index (US500) jumped 1.91%. The Nasdaq Technology Index (US100) jumped by 2.37%. Meanwhile, the S&P 500 (US500) and Dow Jones (US30) indices hit two-month highs, while the Nasdaq (US100) index hit a 3-month-high.

October US CPI declined to 3.2% y/y from 3.7% y/y in September, which was better than expectations of 3.3% y/y. In addition, the core CPI excluding food and energy declined to 4.0% y/y from 4.1% y/y in September, which was better than expected and the smallest increase in two years.

Comments from FRB President Richmond Barkin indicated that he favors maintaining a pause in Fed rate hikes when he stated that the impact of rate hikes may be delayed, but with rates capped, the Fed has time to monitor the economy.

A negative factor for stocks continues to be a possible US government shutdown. The US lawmakers have until Friday evening to pass a temporary spending bill before funding runs out and the government shuts down.

Equity markets in Europe rose steadily on Tuesday. Germany’s DAX (DE40) rose by 1.76%, France’s CAC 40 (FR40) gained 1.39% yesterday, Spain’s IBEX 35 (ES35) jumped by 1.72%, and the UK’s FTSE 100 (UK100) closed positive by 0.20%.

Good news for the Bank of England: services inflation fell even more than expected. Services inflation came in below the Bank of England’s October forecast and that pretty much rules out further rate tightening this year. Last year’s 25% rise in household energy tariffs disappeared from annual comparisons, and electricity/gas prices fell by 7% in October this year. And while that drop was a much smaller factor, food price inflation also slowed significantly. As a result, the core CPI is now at 4.6% y/y, down from 6.7% y/y in September.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) was up by 0.34% for the day, China’s FTSE China A50 (CHA50) added 0.02%, Hong Kong’s Hang Seng (HK50) decreased by 0.17% for the day, and Australia’s ASX 200 (AU200) was positive 0.83%.

The People’s Bank of China (PBOC) injected additional funds to support the weak economy. Although the one-year medium-term lending rate (1Y MLF) was left at 2.5%, the Bank of China injected 600 billion yuan (over and above the amount due) to support stimulus spending. Increased funding will support a recovery in activity.

A former senior Japanese financial official said on Wednesday that the weakening yen could be caused not only by the interest rate differential between Japan and the US, but also by structural factors such as the deteriorating fiscal situation. Under such conditions, any currency interventions by the authorities will not help to reverse the situation on the market.

Japan’s gross domestic product contracted by 0.5% in Q3. On an annualized basis, Japan’s economy contracted by 2.1%, well above expectations of a 0.6% contraction and a sharp pullback from the 4.5% growth in the previous quarter. The figure was the first contraction in Japan’s GDP in three quarters and signaled that consumption-driven growth in Japan’s economy may be slowing after booming earlier this year.

S&P 500 (F)(US500) 4,495.70 +84.15 (+1.91%)

Dow Jones (US30) 34,827.70 +489.83 (+1.43%)

DAX (DE40)  15,614.43 +269.43 (+1.76%)

FTSE 100 (UK100) 7,440.47 +14.64 (+0.20%)

USD Index  104.08 −1.55 (−1.47%)

• – Japan GDP (q/q) at 01:50 (GMT+2);
• – Australia Wage Price Index (q/q) at 02:30 (GMT+2);
• – China Industrial Production (m/m) at 04:00 (GMT+2);
• – China Retail Sales (m/m) at 04:00 (GMT+2);
• – China Unemployment Rate (m/m) at 04:00 (GMT+2);
• – UK Consumer Price Index (m/m) at 09:00 (GMT+2);
• – UK Producer Price Index (m/m) at 09:00 (GMT+2);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+2);
• – Eurozone Trade Balance (m/m) at 12:00 (GMT+2);
• – US Retail Sales (m/m) at 15:30 (GMT+2);
• – US Producer Price Index (m/m) at 15:30 (GMT+2);
• – US FOMC Member Barr Speaks at 16:30 (GMT+2);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+2).

By JustMarkets

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.