US inflation eases, global markets rebound
15-08-2022
George Lucas, Raiz Group CEO
The big theme in financial markets last week was signs US inflationary pressures are starting to ease, with the latest US July CPI report showing inflation fell by more than expected. Producer Price Index (PPI) data released Thursday also pointed to easing price pressures.
This has been cheered by investors. Most risky assets made further gains, and it has also changed sentiment about the economic outlook, which is turning more positive.
I think the sentiment turnaround is based on the argument that if price pressures are already moderating, then the likelihood diminishes that the US Federal Reserve has to slow the economy very sharply in order to bring inflation back under control.
This view is supported by the strong performance last week of the energy, financials and materials sectors in the US market, which are very sensitive to the economic cycle.
Amid the positivity, a word of caution is that September is never the best month for equities. So, let’s wait until we get through next month before we start giving the all-clear on economic growth and improved investor sentiment.
Australia to publish monthly CPI data
On the domestic front, the ABS announced that it will soon start releasing a monthly consumer price index (CPI) indicator to provide a faster guide to inflation in Australia.
In addition to the current quarterly releases, we will now have more information points for the market to digest about calls about the direction of interest rates. It also brings us in line with other major developed economies that produce monthly inflation data.
China consumer prices surge to 2-year high
Staying on the inflation theme, it appears China is not immune to rising prices.
Consumer price inflation in China rose to a 24-month high in July, with a big factor being prices of pork, a food staple in the Asian nation, which rose by 20.2% in the month from a year ago. Inflation in China is now nearing the government’s target of 3%.
That’s still very low by global standards, and the market thinks it will probably not go much higher than 3%. However, remember that is also what the US Fed said when inflation began to rise in the US and now it is significantly higher there.
Meanwhile, in Malaysia, data published last week showed that GDP growth in the Southeast Asian country edged down in quarter-on-quarter terms last quarter to 3.5%, from 3.9%.
Otherwise, with the northern hemisphere on summer holidays it was a rather quiet week on the news front, with few market moving developments to report.
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