Global Markets React to US Inflation Figures, Uncertainty Looms Over Rate Hike Prospects


Worldwide equity markets experienced a notable downturn on Friday as the latest US inflation data failed to assuage concerns surrounding potential interest rate hikes. Despite a below-forecast US inflation reading, there remains a prevailing unease that the Federal Reserve might opt for rate increases later in the year.

The eagerly awaited report unveiled that consumer prices in July exhibited an increase surpassing the previous month, yet falling short of the worst fears. This outcome has seemingly afforded the US central bank the leeway to pursue a more restrained approach to monetary policy, thereby signaling a potential departure from over a year of stringent tightening.

Additionally, the data divulged that core inflation, a closely monitored metric, was showing signs of moderation. Concurrently, the count of jobless claims surpassed projections, engendering optimism. The Fed has been utilizing the robustness of the labor market as a pivotal gauge in its decision-making process.

Nonetheless, while a prevailing consensus anticipates policymakers refraining from raising borrowing costs during the upcoming meeting next month, experts assert that the possibility of such a move later in the year should not be discounted.

Contemplation is also centered around the duration for which elevated rates might persist. Several officials are maintaining an open stance as they grapple with strategies to curtail inflation.

Mary Daly, Chief of the San Francisco Federal Reserve, conveyed to Yahoo! Finance, "The most recent data arrived largely in line with expectations, which is undeniably positive." However, she underscored, "This data point does not imply unequivocal triumph. Work remains to be done, and the Federal Reserve remains unswervingly committed to effectively reducing inflation to its targeted two percent."

Tapas Strickland, representing National Australia Bank, added, "The data should bolster the widely embraced notion that the Fed might forego a rate hike in the upcoming September meeting. Yet, it sustains the viability of a potential future hike later in the year, given the tight labor market conditions."

Observations indicate that substantial data releases are still pending prior to the forthcoming policy decision, encompassing statistics on employment and inflation.

Stephen Innes of SPI Asset Management highlighted, "The argument in favor of another rate hike could still be advanced, particularly in light of increased energy and food costs."

Although Wall Street offered a cautiously optimistic trajectory, a retreat was observed following an initial surge sparked by the Consumer Price Index (CPI) data, as market participants anticipate a moderation following a robust first half of 2023.

Michael Hewson at CMC Markets remarked, "The inability to sustain the day's gains underscores investors' prevailing anxiety concerning inflation projections, despite (San Francisco Fed Chief) Daly's non-voting status within this year's policy board."

The Asian markets mirrored the global sentiment with negative movements.

Hong Kong extended its weekly losses, with e-commerce giant Alibaba surging in response to an earnings report unveiling a first-quarter revenue increase surpassing expectations.

Shanghai, Sydney, Singapore, Seoul, Manila, Taipei, Mumbai, and Jakarta all registered declines. Bangkok and Wellington, however, managed to secure gains. Tokyo remained closed for a public holiday.

In the European sphere, London experienced a decline, shrugging off data indicating modest expansion in the UK economy during the second quarter. Similarly, Paris and Frankfurt also reported losses.

Global investors are closely monitoring developments in China, hoping for concrete measures aimed at revitalizing the sluggish economy. Recent disheartening figures on trade and inflation have exacerbated concerns that the post-Covid recovery is losing momentum.

Reports indicate that China's securities regulatory authority intends to convene discussions centered around the property sector. These discussions aim to navigate a route out of a crisis that many experts warn could imperil both domestic and global economies.

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