The US inflation numbers released earlier today came higher than expected – contradicting the expectation of much of the market that the worst was behind us.
As a result, interest rates may continue to rise for longer, which should affect the stock market. American stock markets opened lower and dragged the European markets and the Ibovespa.
Despite the moderation in some items such as gasoline, consumer inflation (CPI) was 8.3% in the twelve months ended in August. Analyst consensus was 8.1%.
The current inflation rate is 4 times the Fed’s inflation target of 2% per year.
Core prices (excluding energy and food, which are more volatile items) increased by 6.3%, also higher than expected. The August result also showed an acceleration compared to June and July, when the variation had been 5.9%.
Fuel prices fell sharply, a reflection of the decline in oil prices. But expenses like rent and medical services continued to put heavy pressure on Americans’ living costs.
Given this data, it is virtually certain that the Federal Reserve, the US Central Bank, will tighten the interest rate again by 0.75 percentage point at its meeting next week.
To make matters worse: the prices of services, which remained high, indicate that inflation is more resistant than expected – which could cause interest rates to rise beyond what is already priced in the markets.
In mid-afternoon, Nomura changed its bullish estimates for Fed Funds to 100 basis points at the next meeting, and another 50 basis points in November and December. (The market consensus as of yesterday was 0.75, 0.50 and 0.25.)
The glass is half full: the high inflation of services reflects a still heated economy. Many Wall Street banks that expected a fall in GDP at the end of the year have already thrown that possibility for 2023.
For some analysts, there is reason to believe that the United States and the global economy will escape a deeper recession – the hard landing – and will have a smooth landing – the soft landing.
Marko Kolanovic and Nikolaos Panigirtzoglou, strategists at JP Morgan, think the latest data from the world’s major economies show a decline in inflationary pressures and wages.
The improvement in consumer and business confidence should also stimulate growth and prevent the recessionary scenario from materializing. This should favor actions that accompany the economic cycle and small capsin addition to emerging and Chinese securities.
Analysts see excessive pessimism on the part of investors as a buying opportunity. “For risky assets, economic data is more important than central bank speech,” they say.
“The Fed will likely pivot, which is a positive thing for cyclical stocks. Tailwinds are favorable for risky assets, despite more hawkish of central banks.”