Global markets were largely static overnight despite a US inflation print which ticked slightly higher than expected.
The US Consumer Price Index rose by 3.7% at a headline annual level, against estimates of 3.6% and by 0.6% on a monthly basis, which was in line. However, the more indicative core number, which strips out volatile energy and food prices and is therefore seen as a better reflection of underlying trends, rose by 4.3% on an annual basis and by 0.3% monthly, both in line with expectations.
The news had for the most part been anticipated given the recent rise in energy prices, and while rising costs are inevitably to the detriment of businesses and households, investors took some comfort from the fact that the moves were largely flat. Indeed, the airline sector saw some marginal losses as higher costs could crimp short-term profits. However, with core inflation seemingly on a slow but consistent downward trajectory towards the 2% target, the immediate pressure was lifted as a return to higher numbers did not materialise.
As such, the market reaction was lukewarm, with consensus remaining firm that no rate rise will be announced by the Federal Reserve next week, although speculation will remain around the November meeting, where consensus is split down the middle at present between a further no change decision and another small hike. In the year to date, the main indices remain comfortably ahead, with rises of 4%, 16% and 32% for the Dow, S&P500 and Nasdaq respectively.
Attention now turns to the Producer Price Index, the wholesale version of the CPI, which is expected to have risen by 0.4% as compared to 0.3% in July. In addition, the retail sales number will also be closely watched, but will need to be dissected, since the headline number is likely to have risen due to higher spending due to higher oil prices. However, the underlying number may have suffered as consumers would therefore have less to spend on discretionary goods given more petrol expenditure.
Asian markets also took the inflationary update largely in their stride, with small movements either side of flat. This came despite renewed concerns on the Chinese property sector, where Country Garden shares sank by almost 5% in Hong Kong ahead of another upcoming deadline for a bond repayment. Elsewhere, an announcement from the European Commission that it would be starting a probe into subsidies of China electric vehicle sales weighed on the sector.
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UK markets mirrored the overnight trading action elsewhere, with the FTSE100 index opening marginally higher. With a sideways glance towards an interest rate decision later by the European Central Bank where a further rise is possible, the update will provide another reminder if it were needed that the battle against inflation remains live.
UNITE Group (LSE:UTG), Melrose Industries (LSE:MRO) and Intertek Group (LSE:ITRK) were marked lower having gone ex-dividend today, while a tentative risk-on approach to the mining sector was in evidence, bolstered by broker upgrades to both Anglo American (LSE:AAL) and Rio Tinto Registered Shares (LSE:RIO).
With the possibility of price action being driven from elsewhere over the course of the day, there is the potential for UK markets to drift, with the FTSE100 being unable to add much to its gain of 1.2% in the year so far off its own bat.
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