Likewise downward pressure for stocks in Asia and crypto
Data shows U.S. August inflation dropped to 2.6%, boosting Fed rate cut expectations. Treasury yields fell, and stocks declined modestly.
U.S. Economic Data
The U.S. August Consumer Price Index (CPI) report, released before the Federal Reserve’s crucial rate decision on September 18, showed a 0.2% month-on-month increase in both headline and core CPI. Year-on-year inflation dropped to 2.6% in August, down from 2.9% in July, marking the lowest level since March 2021. This inflation data reinforces expectations of a modest 25 basis points (bps) rate cut by the Fed, with markets fully pricing in this move. Rental inflation remains a key indicator to watch, as July showed an unexpected rise.
U.S. Treasury Data
U.S. Treasury yields reacted to this data, with the 10-year yield hitting 3.605%, its lowest since June 2023. The U.S. dollar also softened, trading at 141.68 yen. Despite inflation slowing, prices rose slightly more than expected from July to August when excluding energy, a sign of persistent inflationary pressures in some areas.
Stocks responded to the CPI data, with the S&P 500 down 0.4%, and the Dow Jones Industrial Average falling by 381 points (0.9%). The Nasdaq composite was up slightly by 0.1%. Most stocks fell as traders scaled back their expectations for a large rate cut by the Fed. Bank stocks, particularly JPMorgan and Goldman Sachs, took a hit, with downbeat comments on income from interest payments and trading revenue, respectively.
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European Markets and Banking News
In Europe, Italy’s UniCredit made headlines by acquiring a 9% stake in Commerzbank, signaling potential consolidation in the European banking sector. This move raises speculation that UniCredit CEO Andrea Orcel may attempt to take over the German lender. European stocks saw modest gains, with the Stoxx Europe 600 rising by 0.4%.
Japan and Asia Data
Japanese stocks faced downward pressure, with the Nikkei 225 falling 1.5% after comments from a Bank of Japan official suggested that interest rate hikes could be on the horizon. This news also pushed the Japanese yen higher, causing some volatility in global markets. Investors are now anticipating more clarity on Japan’s industrial production data, set to be released later this week.
Global Bond and Commodity Markets
In the bond market, U.S. 10-year Treasury yields rose slightly to 3.66%, while the 2-year yield, closely tied to Fed expectations, increased to 3.64%. German and U.K. bonds remained relatively stable, with Germany’s 10-year yield at 2.13% and the U.K.’s 10-year yield falling slightly to 3.78%.
Crude oil prices saw a boost, with West Texas Intermediate (WTI) crude rising 2% to $67.06 per barrel. Spot gold dropped by 0.4%, falling to $2,506.72 per ounce. Bitcoin and Ethereum, major cryptocurrencies, experienced declines of 1.9% and 2.6%, respectively.
Global Economic Indicators
This week’s key global economic data includes U.S. jobless claims and producer price index (PPI) data, European industrial production, and consumer sentiment from the University of Michigan. Additionally, the European Central Bank (ECB) is expected to make a rate decision, further influencing global markets.
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