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US inflation cools more than expected

Inflation in the US slowed rapidly last month, coming in negative on the month and well below analysts’ expectations. The US dollar dropped, gold shot up and Treasury yields fell immediately after the release of the data on Thursday as traders assumed the soft inflation figure clears the way for the Federal Reserve (Fed) to begin cutting interest rates soon. US tech stocks abruptly ended their recent record-breaking rally on Thursday.

Data
Autore
Shane Strowmatt, LGT
Tempo di lettura
5 minuto

Inflation shown with icons

The US Consumer Price Index (CPI) fell 0.1% in June when compared with May, the first month-on-month decline since the outbreak of the coronavirus in 2020. When compared to the same period last year, headline inflation was 3%. Lower gas prices and cooling housing prices help inflation to decelerate. Core inflation – which strips out volatile food and energy prices – was 3.3%, still clearly above the Fed’s target of 2% inflation. The Fed’s next policy meeting is at the end of the month.

Markets reacted to the release quickly as both the headline and core inflation figures were lower than analysts’ expectations. The dollar dropped to about 0.918 versus the euro and gold busted through the 2400 dollar barrier to trade around 2420 on Thursday afternoon. Yields on two-year US Treasuries fell to around 4.5% while ten-year yields were trading below 4.2%.

Tech stocks stopped dead in their tracks

After relentlessly breaking through records in recent trading sessions, US tech stocks failed to take part in Thursday’s rally. The Dow Jones Industrial finished Thursday with a mild gain of 0.1%, but the S&P 500 fell 0.9% and the tech-heavy Nasdaq-100 plummeted 2.2%. The dumping of tech stocks comes just before US banks J.P. Morgan, Wells Fargo, Citigroup kick off the second-quarter earnings season later Friday. Quarterly figures from companies that have profited from the AI-driven market rally will once again be under particular scrutiny in the coming weeks.

Wild swings in the yen

While trading in the Asia-Pacific region was mixed to finish the week, the Nikkei 225 was the region’s biggest loser on Friday, dropping 2.5%, as traders speculated that the Japanese Ministry of Finance may be intervening in currency markets. The yen strengthened rapidly versus the US dollar following the release of Thursday’s US CPI figure and saw wild swings early Friday.

In China, exports came in stronger than market expectations, increasing 8.6% in June when compared with the same period a year earlier. Hong Kong's Hang Seng Index shot up more than 2%, while the CSI 300 was trading roughly flat. Elsewhere in the Asia-Pacific region, South Korea’s Kospi fell 1.5% and Australia’s S&P/ASX 200 was trading 0.8% higher.

German core inflation back below 3%

Germany's annual inflation rate, measured by CPI, came in at 2.2% in June 2024. The result released Thursday was in line with market expectations and confirmed previous provisional results. The core inflation rate, which excludes food and energy prices, stood at 2.9%, marking the first time it has fallen below 3% since February 2022. While energy and food prices had a dampening effect on overall inflation, service prices continued to show above-average price increases. Germany’s DAX gained 0.8% on Thursday, while the Euro Stoxx 50 was up 0.4%.

Corporate and macroeconomic calendars

Corporate news in focus: Second-quarter figures from J.P. Morgan, Wells Fargo, Citigroup.

Economic data in focus: Swedish Consumer Price Index, French Consumer Price Index, US Producer Price Index, University of Michigan Consumer Sentiment Index.

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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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