Inflation returns to freeze Wall Street, which nevertheless tries to recover from the umpteenth blow from the macro front.
After retreating to the premarket, the main US stock indices are attempting to recover again. At about 4 pm Italian time, the Dow Jones rises by more than 110 points (+ 0.44%); the Nasdaq Composite advanced 0.33%, as did the S&P 500.
Yesterday, the fifth consecutive session of declines for the S&P 500 index and for the Nasdaq. In particular, the S&P 500 fell by 0.65% to 3,588.84 points. The Nasdaq Composite lost 1.10% to 10,426.19, closing at its lowest since July 2020. The Dow Jones Industrial Average rose 36.31 points (+ 0.12%) to 29,239.19.
Before the start of the trading day on Wall Street, the US producer price index was released, one of the most important thermometers to monitor the trend of inflationary pressures: the figure rose in September on a monthly basis by 0.4 %, double the 0.2% increase expected by the consensus and a marked acceleration compared to the previous 0.2% decline.
On an annual basis, the PPI index jumped 8.5%, more than the + 8.4% estimated by the consensus, but less than the 8.7% rise in August.
Excluding the more volatile components represented by energy and food prices, the producer price index advanced 7.2% on an annual basis, less than the estimated 7.3%, rising 0.3% on a monthly basis, as expected, and as the previous + 0.3% (figure revised downwards from the previous increase of 0.4%).
The data shows that US inflation on the whole continues to rise above analysts’ expectations, disregarding the hopes of the Fed, which aims to bring the growth rate back to the 2% target. On the other hand, the trend is more than 4 times higher than the target of the American central bank.
The minutes from the Fed relating to the last meeting of the FOMC, the monetary policy arm of the US central bank, relating to last September 21st, when the main reference rates were raised by 75 basis points, as expected, will also be published today. and Powell & Co confirmed their intention to carry out further monetary tightening to fight inflation, which has been at its highest level since the early 1980s.
The US central bank has brought US rates into the range of 3% to 3.25%, a record since 2008, making the third consecutive tightening of 75 basis points.
Today’s PPI inflation data further fosters fears of new aggressive monetary tightening by Jerome Powell’s Fed.
At this point the wait is for the other since it monitors inflation, the CPI – or the consumer price index – which will be released tomorrow.
“The rise in the prices of goods and services should not come as a surprise. Remember that the increase remains lower than what we saw earlier this year each month, steadily, ” said Mike Loewengart, head of model portfolio construction at Morgan Stanley’s global investment office, Morgan Stanley. Global Investment Office – No doubt the Fed still has some work to do, and if the CPI that is released tomorrow is high, don’t be surprised to see some investors realize it will take a long time to see a slowdown in the market. ‘inflation”.
A hawkish Fed assist came yesterday from Cleveland Fed Chair Loretta Mester:
“The biggest risk to monetary policy is that the Fed will not raise rates sufficiently” to counter US inflation, Mester said, adding that the “Fed still needs to make progress in lowering inflation” and that “monetary policy must enter a restrictive phase”.
“The size of the Fed’s monetary tightening will depend on economic conditions,” said Mester, predicting a US unemployment rate to rise (from 3.5% now) to 4.5% by the end of 2023 and then again. highest in 2024. Cleveland Fed number one said she expects inflation to drop to 3.5% in 2023 and 2%, thus in line with the Fed’s 2% target by 2025 .
“A possible shock could slide the United States into recession,” the Fed official admitted, acknowledging that “the fight to lower inflation is painful, but it has to be.”
There has been a lot of talk about recession for a long time, and in the last few hours the fears about the arrival of a hard landing in the US and in the world have been rekindled by the new forecasts on global GDP growth, which the IMF, the International Monetary Fund, published yesterday updating the World Economic Outlook (WEO).
The Washington institution announced it had cut its global economic growth outlook for 2023 by 0.2 percentage points from its July estimates, estimating a 2.7% expansion. Aside from GDP trends during the global financial crisis and the peak of the Covid-19 pandemic, 2023 will see “the weakest growth rate since 2001”. World GDP in 2022 is expected to remain stable with growth of 3.2%, however almost halved by the 6% expansion in 2021.
“The worst is yet to come, and for many people 2023 will be like experiencing a recession,” reads the IMF report, which follows the warnings already issued by the United Nations, the World Bank and many CEOs.
However, the risk of a recession was dampened by US President Joe Biden.
In an interview with CNN Biden said, commenting on the latest outlooks on the American economy produced by the various investment banks, that he does not believe that, in the short term, the US will go into recession and that, even if it were to be, it will eventually be a “mild” slowdown in the economy.
The situation “is very, very serious” and the American and global economies should slide into recession over the next 6-9 months, by mid-2023, Jamie Dimon, head of JP Morgan warned the day before yesterday. , the number one bank in the United States.
In this context, Wall Street is destined to suffer further, added the CEO, with a thud in the S&P 500 index that could be “easily 20%” compared to current levels. Not only that: “the next 20% drop could be more painful than the first”.
Commenting on the investment banks’ forecasts, Biden nevertheless stressed:
“They say it every six months. Every six months (the banks) look to the next six months and say it will happen. But it hasn’t happened yet. It didn’t happen… and I don’t think there will be a recession. If it does, it will be a very mild recession ”.
Confidence in the American economy was also expressed by US Treasury Secretary Janet Yellen:
“The US economy is doing very well,” in a context of rising energy prices, new variants of Covid-19 and war between Russia and Ukraine, Yellen said in an interview with CNBC.
If Biden made fun of Jamie Dimon & Co’s predictions, so did Tobias Adrian, director of the money and capital markets division of the International Monetary Fund.
In an interview with CNBC, Adrian said that it is “certainly possible” that the predictions of JP Morgan’s number one, which predicts a drop in the S&P 500 by an additional 20%, will materialize.
On the US Treasury market, ten-year interest rates are barely moved, around 3.937%, after rising to 3.966%. The two-year rates, which are more sensitive to the Fed’s monetary policy decisions, are instead down to 4.304%. The rate differential, or spread, confirms that the yield curve of US government bonds continues to remain inverted: a warning signal according to several analysts of the arrival of a recession in the United States.