Investors expect inflationary pressures to ease in the US. The People’s Bank of China launched a mechanism to support the stock market

At the end of Wednesday, the Dow Jones Index (US30) rose by 1.03%, while the S&P 500 Index (US500) gained 0.71%. The NASDAQ Technology Index (US100) closed yesterday positive 0.60%. Positive comments from Fed Vice Chairman Jefferson are helping stocks rise as he said the US economy is growing at a “robust pace”. Stocks also rose on speculation that today’s US consumer price report will ease price pressures. Economists expect annualized core inflation, which excludes food and fuel costs, to slow to 3.1% from 3.2%. Overall inflation is forecast at 2.3% y/y, down from 2.5% y/y in the previous month. The easing inflationary pressures and Friday’s strong employment report will convince the US Fed that inflation is on a steady path towards the 2% target. This will increase the likelihood that the US Fed will cut rates by 0.25% at each of its meetings in November and December. A sharper decline in inflationary pressures would be a negative scenario for the US dollar but positive for gold and risk assets (euro, pound, equities).

Minutes from the last FOMC meeting in September showed that Fed policymakers were divided over the size of the rate cut, with some participants favoring a quarter-point cut instead of the mandated 50 bps. Investors currently estimate the probability of a quarter-point rate cut in November at 78%.

Boeing’s (BA) stock price is down more than 3% and tops the list of losers in the S&P 500 (US500) and Dow Jones (US30). After talks to end a nearly month-long labor strike, it failed. Alphabet (GOOGL) shares fell more than 1% after the US Justice Department told a federal judge that it was considering recommending that Google be forced to sell some of its operations to settle an antitrust lawsuit.

Mexico’s core annual inflation rate fell to 3.91% in September, the lowest level since February 2021, down from 4% in August and slightly below forecasts. The annual inflation rate fell for the second consecutive month to 4.58%, the lowest level since March and below market expectations of 4.62%. Weakening price pressures may prompt the Bank of Mexico to consider further interest rate cuts after recent cuts, which would put pressure on the Mexican peso.

Equity markets in Europe mostly went up yesterday. Germany’s DAX (DE40) rose by 0.99%, France’s CAC 40 (FR40) closed up 0.52%, Spain’s IBEX 35 (ES35) added 0.06%, and the UK’s FTSE 100 (UK100) closed positive 0.65%.

ECB Governing Council representative Villeroy de Galhau said yesterday that an ECB interest rate cut next week is very likely and will not be the last. Still, the subsequent pace will depend on developments in the fight against inflation. His colleague, ECB Governing Council spokesman Kazaks, also said interest rates should be cut further because of the weakening Eurozone economy. Swaps discount the odds of a 25 bps ECB rate cut at the October 17 meeting by 94% and a 25 bps rate cut at the December 12 meeting by 100%.

WTI crude oil prices fell to $73.2 a barrel on Wednesday after falling 4.6% the previous day amid weak demand and rising supply. EIA data showed a 5.810 million barrel increase in US crude inventories, which exceeded market expectations by 2 million barrels, while API data totaled nearly 11 million. In addition, the US EIA revised its 2025 demand forecast downward, citing slowing economic growth in China and North America, which put additional pressure on oil prices.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) rose by 0.67%, China’s FTSE China A50 (CHA50) fell by 5.79%, Hong Kong’s Hang Seng (HK50) lost 0.91%, and Australia’s ASX 200 (AU200) posted modest gains of 0.17% over yesterday.

Today, the People’s Bank of China (PBOC) launched a RMB500 billion swap facility, allowing eligible financial institutions to use assets as collateral to provide liquidity. The initiative, known as the Swap Fund for Securities, Funds and Insurance Companies (SFISF), is part of the central bank’s efforts to develop a new structural monetary policy tool to support the stock market. This facility allows securities, funds, and insurance companies to obtain liquid assets to purchase equities using their bonds, ETFs, and stocks included in the CSI 300 index as guarantees.