Stocks slide as investors weigh slowing US inflation ~ EconomyLens.com

London (AFP) – US stocks fell on Wednesday as consumer inflation data fueled debate about the size of an expected Federal Reserve interest-rate cut next week and the outlook for further cuts. Investors were also digesting the US presidential debate between Vice President Kamala Harris and former president Donald Trump.

Eagerly awaited data released on Wednesday showed the US consumer price index (CPI) had slowed more-than-expected to 2.5 percent in August from a year ago, down from 2.9 percent in July and the lowest annual figure since February 2021. Mahmoud Alkudsi, senior market analyst at brokerage ADSS, said recent inflation data has come in lower-than-expected and has been accompanied by weak job market data for the past two months.

“These developments may give the data-driven Federal Reserve greater confidence to accelerate its pace of interest rate cuts, potentially to the tune of 50 basis points at its next meeting,” he said. Fed officials have signaled that they are ready to begin cutting interest rates at their meeting next week for the first time since inflation rocketed and then fell in the wake of Russia’s invasion of Ukraine. Whether they will start with a 25 or 50 basis points cut has been the subject of intense debate among traders.

Briefing.com analyst Patrick O’Hare said the main takeaway from Wednesday’s report is that “core” inflation with volatile food and energy prices stripped out remains stubbornly above the Fed’s two percent target. It held steady at an annual rate of 3.2 percent in August. “The elevated core reading on a monthly and annual basis will be a focal point for the Fed and a likely reason to keep a September rate cut capped at 25 basis points,” he said.

XTB brokerage research director Kathleen Brooks said Wednesday’s inflation data “also complicates the outlook for rate cuts further in the future.” While the data supports the Fed beginning to cut interest rates, “does it justify the 10 rate cuts that are currently priced in by the Fed Funds market over the next nine months?” Recent economic data has also fueled debate on whether the Fed has waited too long to begin cutting rates and the US economy may be heading into recession. Stocks and oil prices have seen sharp falls in the past couple of weeks as the growth outlook worsens.

Oil prices recovered in part after a hammering on Tuesday, when Brent North Sea crude slid below $70 per barrel for the first time since December 2021 on concerns about the global outlook. Elsewhere on Wednesday, the yen hit a nine-month high after a Bank of Japan official hinted at more monetary tightening. The Japanese unit was boosted also by bets on a Harris presidency after she was considered to have come out on top in her debate with Trump and following her endorsement by pop superstar Taylor Swift.

The chances of Trump losing weighed on bitcoin after he had previously vowed to be a “pro-bitcoin president” if elected in November. Paris and Frankfurt stocks diverged ahead of an expected interest rate cut on Thursday, with Frankfurt boosted by a more than 16 percent surge in Commerzbank shares after Italian rival UniCredit announced it had acquired a nine percent stake. Sentiment in London was dented by official data showing Britain’s economy stalled in July.

Asia’s main equity indices closed lower with a strong yen weighing on Tokyo’s market, while Chinese stocks were knocked by concerns over China’s struggling economy, analysts said.