The acceleration of inflation in the United States, which keeps the decline in rates, is surprising the markets. Consumer prices rose by 3.4% in December, above analysts’ expectations and well above the 3.1% recorded in November. On a monthly basis, prices recorded a +0.3%, slightly above expectations which were based on +0.2%. The core index, net of energy and food and the one preferred by the Fed, rose by 3.9% at a trend level (the estimate was +3.8%) and by 0.3% at a cyclical level. The rise in prices is mainly due to increases in home and car insurance (+20% on December 2022). These are data that undermine the most optimistic forecasts of a 2024 characterized by repeated cuts in the cost of money by the Federal Reserve and the ECB, so much so that the cold shower also hit the European stock markets, as well as Wall Street: they closed yesterday the Ftse Mib of Milan was negative (-0.66%), the Dax of Frankfurt (-0.86%), the Cac of Paris (-0.52%), the Ibex of Madrid (-0.62 %), the Amsterdam AEX (-0.06%) and the London Ftse 100 (-0.98%).
The reduction in rates in fact tends to favor the stock markets, as it makes it easier to find capital to invest in the stock market as well. It is true that one swallow does not make a summer and a decrease in rates remains a probable scenario, however some estimates on the timing and intensity of the interventions could be a little exaggerated, in light of the data released yesterday. “The market has welcomed the recent decline in general inflation very positively, but ‘core’ inflation is still above 2%. Probably both the Fed and the ECB have reached the peak of monetary policy rates, but it is presumable to expect that, to carry out a rate cut, they will first want to verify the actual continuation of the decline in inflation”, says Ugo Trenta, head of Corporate Bond at Banco Posta Fondi Sgr.
A first litmus test will take place in March, when the Fed will meet to evaluate an intervention on the cost of money. The American central bank has estimated three rate cuts in 2024, but analysts had gone further, hypothesizing up to six reductions in the cost of money. Traders now view a rate cut in March as more difficult. And they expect the first cut to be in May or June.
Elena Comelli