📈 Weekly Market Update | Week Ending 15 Sep 2023

• 🇺🇸 Annual inflation in the US posted its biggest monthly increase this year

• 🇨🇳 The People’s Bank of China announced a 25bps rate cut

• 🇪🇺 The European Central Bank hinted that it is likely done with hiking rates

1. Annual inflation in the US posted its biggest monthly increase this year

The Dow Jones, S&P 500 and Nasdaq ended the week 0.12%, -0.16% and -0.39%, respectively, amidst the release of inflation, retail sales and initial jobless claims data. Annual inflation in the US posted its biggest monthly increase this year in August as consumers faced higher energy prices. Inflation accelerated for a second straight month, rising 0.6% (vs 0.6% estimates) month-on-month and 3.7% (vs 3.6% estimates) year-on-year. Core inflation, which excludes volatile food and energy prices, rose 0.3% (vs. 0.2% estimates) month-on-month and 4.3% (vs. 4.3% estimates) year-on-year. The large increase in headline inflation is due to energy prices, which rose 5.6% in August. US producer prices also grew the most over a year, increasing 0.7% month-on-month in August 2023, the highest level since June 2022 and exceeding market expectations of a 0.4% rise.

Despite higher prices and borrowing costs, consumer spending in the US continues to remain resilient, with retail sales advancing 0.6% month-on-month in August 2023, higher than a 0.5% rise in July 2023 and beating forecasts of 0.2%. Additionally, initial jobless claims came in below expectations, reflecting the relative resilience of the US labour market. In response, the yield on the US 10-Year Treasury rose past 4.3%, nearing its 15-year high as the recent string of economic data shows that the US economy remains resilient and the market is betting that the Federal Reserve will keep interest rates higher for longer.

2. The People’s Bank of China announced a 25bps rate cut

Meanwhile, over in China, The People’s Bank of China (“PBOC”) announced on 14 September 2023 that it would cut the Reserve Requirement Ratio (“RRR”) for all banks, except those that have implemented a 5% reserve ratio, by 25bps from 15 September 2023. This is the second RRR cut this year, which brings the rate for large banks to 10.5% and the weighted average RRR for financial institutions to 7.4%. Additionally, the PBOC affirmed that it is committed to maintaining the stability of the Chinese Yuan exchange rate, emphasising that its prudent monetary policy will continue to be precise and forceful. Over on the economic front, China’s industrial production rose by 4.5% year-on-year in August 2023, beating forecasts of 3.9%. Following recent support measures, this is the most robust expansion in industrial output since April. Retail sales also accelerated in August, rising 4.6% year-on-year in August 2023, quickening from a 2.5% growth in the prior month and exceeding market estimates of 3%.

3. The European Central Bank hinted that it is likely done with hiking rates

Lastly, on 14 September 2023, the European Central Bank (“ECB”) hiked interest rates by 25bps, bringing its main deposit facility rate to a record 4%. The ECB’s main refinancing operations and marginal lending facility rate were also hiked to 4.5% and 4.75%, respectively. Additionally, according to the September ECB staff macroeconomic projections for the Euro Area, average inflation is forecasted to be at 5.6% in 2023 and 3.2% in 2024, both higher than previous estimates due to elevated energy prices and 2.1% in 2025, a slight downward revision from 2.2%. However, the ECB hinted that it is likely done with hiking rates as inflation has declined but is still expected to remain high.

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This Weekly Market Update is sourced from Bloomberg and various financial news.

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