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Euro-area inflation ticks up

Inflation in the euro area increased last month, pushing the euro to its highest level this year and dashing some traders’ hopes for another rate cut by the European Central Bank (ECB) next month. European and US stock markets traded lower on Tuesday. In Asia, equities were also mostly in the red. Bond yields and the US dollar fell ahead of the release of Purchasing Managers’ Indices from various countries on Thursday and an update from key central banking figures at the Economic Policy Symposium in Jackson Hole, USA, at the end of the week.

Date
Auteur
Shane Strowmatt, LGT
Temps de lecture
5 minutes

Europe Euro
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Euro-area inflation increased to 2.6% year-on-year in July, up from 2.5% in June, exceeding economists’ estimates. Core inflation remained steady at 2.9%, indicating persistent underlying price pressures above the European Central Bank's (ECB) 2% target. The inflation rise makes it more difficult for the ECB to lower interest rates and has contributed to the euro reaching a nine-month high against the US dollar, driven by expectations of Federal Reserve rate cuts.

European stock markets were under pressure on Tuesday with the Euro Stoxx 50 dropping 0.5%, France’s CAC 40 losing 0.2% and Germany’s DAX falling 0.4%.

Japanese trade deficit larger than expected

Japanese exports rose 10.3% on the year in July, while imports were up 16.6%. That led to a trade deficit of JPY 622 billion, almost twice as large as markets had expected. July’s data is the last trade data available from before the Bank of Japan increased its key interest rate at the end of July. In Tokyo, the Nikkei 225 fell 0.6%

In the Asia-Pacific region, other stock markets were mixed midweek. In South Korea, the Kospi was trading 0.2% higher, while Australia’s S&P/ASX 200 gained 0.1%. Hong Kong's Hang Seng Index fell about 0.1%, while the CSI 300 was down 0.2%.

US stocks snap winning streak

In New York, stock indices took a break from gains made over the last two weeks. Traders were waiting for a clear signal from Federal Reserve Chair Jerome Powell at Jackson Hole at the end of the week about timing and pace of interest rate cuts before taking stronger positions. The Dow Jones Industrial, S&P 500 and Nasdaq-100 each ended Tuesday’s session 0.2% lower.

Canadian inflation cools to slowest pace in more than three years

Inflation data out of Canada on Tuesday was more promising than in Europe. Canada's annual inflation rate fell to 2.5% in July, down from 2.7% in June, reaching a 40-month low and aligning with market expectations. The consumer price index rose by 0.4% on the month, as expected, prompting market anticipation of a 25-basis-point interest rate cut by the Bank of Canada in September. The decline in inflation, alongside concerns over a weakening labour market, supports expectations for further rate reductions.

Riksbank reduces key interest rate

Sweden's central bank has lowered its key interest rate to 3.5% from 3.75%, marking the second reduction this year, driven by a decline in inflation close to its 2% target and weak economic growth. The central bank's dovish stance is influenced by a 0.8% contraction in gross domestic product in the second quarter and concerns over high unemployment. Inflation has been under the central bank’s 2% CPIF target (Consumer Price Index with a fixed interest rate) for two months in a row.

Corporate and macroeconomic calendars

Corporate news in focus: Quarterly figures from Target.

Economic data in focus: No major economic data is scheduled for publication today.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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