Yesterday’s US CPI reading continued to put wind into the sails of global equities on Thursday as investors positioned for a potential end to the US rate hike cycle.
US CPI fell to 3% in June, while Core CPI inflation fell to 4.8%. These are close to the Federal Reserve’s 2% target but are still high enough to warrant further rate hikes – even if they are intermittent.
Nonetheless, the trend to the downside in US inflation is nothing but good news for stocks FTSE 100 gained 0.3% on Thursday and S&P 500 jumped 0.5% to the highest level in over a year.
While US inflation dropped sharply last month, some think we may be near the end of the road for the current disinflationary trend.
“We do not think inflation is going to come back down to central bank comfort zones by themselves,” said Bruce Kasman, Chief Global Economist at J.P. Morgan.
“Yes, there’s a decline going on. But no, we do not think you’re going to get [core] inflation back below 3% in the U.S. or the euro area this year in an environment where supply has been damaged in a more lasting way and inflation psychology has shifted.”
JP Morgan Research sees the US economy entering a mild recession towards the end of 2023 due to central bank tightening.
FTSE 100 movers
A string of disappointing China economic data releases is increasing bets China will again move to stimulate their economy. FTSE 100 miners and other China-focused stocks are a beneficiary of this trade.
Prudential was 2.4% higher at the time of writing on Thursday, while miners jumped. Glencore gained 2.6%, and Rio Tinto added 1.5%.
Selling resumed in housebuilders on Thursday after a brief mean-reversion rally. The release of a trading statement by Barratt Developments gave investors reason to be concerned as reservations and completions fell in recent months.
David Thomas, Barratt Developments, Chief Executive, commented:
“Whilst the trading backdrop has become more challenging in recent months, with many of our customers facing significant cost of living pressures, we have responded decisively – increasing our reservations into the private rental sector, using incentives for customers in a disciplined way, and flexing our build activity, land-buying and operating costs to reflect market conditions.”
Barratt’s slipped 2.5%, while Taylor Wimpey shed 1.91%.