Fundamental Analysis

Equities Surge, Dollar Falls Ahead of Inflation Report

  • The Bank of Japan hinted at moving away from negative interest rates.
  • Investors are closely watching the CPI report.
  • China’s consumer prices turned positive in August.

On Monday, US equities rose, and the dollar retreated as investors awaited Wednesday’s inflation data. The technology-heavy Nasdaq led the US equities rally, gaining 1.1%. Gains in Tesla Inc. and boosted the market the most. The S&P 500 and the Dow also increased, with gains of 0.7% and 0.3%, respectively.

The session seemed calm before a week of crucial US economic data, especially Wednesday’s consumer prices report (CPI). Investors are closely watching the CPI report.

Analysts expect inflation to have risen last month due to higher oil prices, but the core measure, which excludes food and fuel prices, is expected to cool annually.

The CPI data will provide insight into August inflation and the potential duration of the US Federal Reserve’s restrictive policy cycle. The Fed has left the door open for further interest rate hikes and plans to respond to economic data promptly.

Meanwhile, financial markets anticipate a rate pause after the September 19-20 monetary policy meeting, but uncertainty looms beyond that, according to CME’s FedWatch tool.

Elsewhere, the Bank of Japan (BOJ) Governor Kazuo Ueda made comments that raised the possibility of Japan moving away from negative interest rates.

In Europe, equities closed higher, with miners leading gains due to rising base metal prices. Investors prepared for the crucial US inflation data and the European Central Bank’s (ECB) monetary policy decision later in the week.

European miners saw a 2.4% jump in their stocks as prospects of increased demand from China boosted base metal prices. Positive inflation data and stimulus measures from Beijing indicated stabilisation in the world’s second-largest economy.

The ECB is expected to maintain its benchmark lending rate at 3.75% during its upcoming meeting. However, the European Commission lowered its Eurozone growth forecast due to high inflation and Germany slipping into a recession.

Meanwhile, London’s FTSE 100 index reached its highest level in almost a month on Monday. This surge was driven by stocks linked to China, which benefited from data indicating stability in the world’s second-largest economy. 

China inflation (Source: National Bureau of Statistics)

China inflation (Source: National Bureau of Statistics)

Data revealed that China’s consumer prices turned positive in August, and the country’s new bank loans exceeded expectations. These developments signaled signs of economic stability in the country.