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Hope for more moderate US inflation drives stock market recovery

Yesterday saw the release of the US Producer Price Index, one of two important inflation reports this week. After last week's uncertainty in the markets, the data provides an indication of the state of the world's largest economy and the Fed's next interest rate decision in September. Producer prices pointed to a further slowdown in US inflation, which was reflected in gains on Wall Street. The focus today is on US consumer prices, which are crucial to the Federal Reserve's monetary policy. 

Date
Auteur
Dominique Stutz, LGT
Temps de lecture
5 minutes

PPI
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After a cautious start to the week, hopes that the Federal Reserve (Fed) will soon cut interest rates have given US equity markets a new lease of life. A smaller-than-expected rise in producer prices in July provided some relief. The Dow Jones Industrial rose 1% and the S&P 500 closed 1.7% higher. The technology sector posted the strongest gains. The Nasdaq-100 rose by 2.5% to 19,006.43, closing higher for the fourth day in a row and back above the 19,000 mark, which the Nasdaq index had not breached at times this month.

Modest rise in US producer prices 

The producer price index - which measures the selling prices received by manufacturers - rose 0.1% in July from the previous month, the Bureau of Labor Statistics in Washington reported on Tuesday. The core Producer Price Index, which excludes food and energy, was unchanged for the month. Producer prices therefore rose less than expected, supporting a positive sentiment on international stock markets. Investors are now even more likely to expect a rate cut from the Fed in the near future, but are still waiting for the Consumer Price Index (CPI), which is more relevant to short-term monetary policy expectations, to be released this afternoon at 14:30 CET. Markets are generally expecting a Fed rate cut in September, but are divided on the size of the monetary easing.

Asia-Pacific markets mixed - Reserve Bank of New Zealand cuts rates

Asia-Pacific markets were mixed on Wednesday after the Reserve Bank of New Zealand cut interest rates and Japanese Prime Minister Fumio Kishida announced his resignation in September. The Reserve Bank of New Zealand unexpectedly cut its key interest rate by 25 basis points to 5.25%. It had been expected to remain at 5.5%. In Tokyo, the Nikkei 225 rose 0.1% after Kishida's announcement. In Korea, the Kospi was up 0.6%, while the Australian S&P/ASX 200 was up a smaller 0.4%. In Hong Kong, the Hang Seng Index was down 0.5% and the Shanghai Composite was down 0.4%.

Starbucks shares rise after CEO resigns

Among individual stocks, Starbucks shares made the headlines on Tuesday. The abrupt change of CEO from Laxman Narasimhan to Brian Niccol, poached from fast-food chain Chipotle Mexican Grill, sparked euphoria. Starbucks shares soared nearly 25%, while Chipotle shares lost 7.5%.

ZEW indicator hits one-year low 

According to the monthly survey by the Mannheim-based ZEW Institute, the economic outlook for Germany has deteriorated significantly. The relevant indicator fell by 22.6 points to the 19.2 mark. This is the lowest level since the beginning of the year and well below expectations. The weak German data briefly weighed on the euro. European equities were mixed on Tuesday, struggling to maintain positive momentum after a volatile week. Following the more moderate producer price data from the US, the Dax and the EuroStoxx 50 both rose by 0.5% amid a more positive sentiment in equity markets.

UK Labour Market Report

In London, yesterday's Labour Market Report showed a lower than expected increase in wages. According to the report, wages rose by 5.4% year-on-year between April and June, the lowest rate in two years. The unemployment rate fell against expectations from 4.4% to 4.2%. This suggests that the UK labour market remains tight, which may limit the extent of monetary easing by the Bank of England (BoE). UK Inflation data will be released today for the first time since the Bank of England's initial interest rate cut.

Corporate and macroeconomic calendars

Corporate news in focus: Straumann, UBS and Vestas Wind Systems.

Economic data in focus: producer prices and consumer prices UK, consumer prices France, gross domestic product eurozone, and consumer prices in the US. 

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