Please see below, Brooks Macdonald’s Daily Investment Bulletin which provides a brief analysis of the latest news from global investment markets. Received today – 12/09/2024
What has happened?
The focus for investors yesterday was the latest US consumer inflation figures. Aside a still-stubborn and widely perceived lag in US shelter rental inflation, the data was otherwise broadly consistent with a narrative of inflation continuing to fall, albeit gradually, towards the US Federal Reserve’s 2% inflation target, but equally not signalling recession worries either. While markets appeared initially downbeat on the data, equity indices were later moved up by a rally in US mega cap US technology shares which drove the overall market higher. Those tech moves were led by generative Artificial Intelligence chip play Nvidia, which finished the day up +8.15% in US dollar terms, its strongest day’s performance since July.
About that US CPI data
The latest US Consumer Price Index (CPI) data landed yesterday. A glance at the year-on-year numbers suggested a good set of data, with headline all-items CPI falling to +2.5% in August, a touch better than the +2.6% expected, down from July’s +2.9% and the lowest print since February 2021. That headline fall was boosted by the ongoing weakness in the oil price which as a reminder got to under US$70 per Brent barrel earlier this week, its lowest levels since last December, though it saw a bounce yesterday. As for the core (excluding energy and food) CPI, that was inline at +3.2% year on year. However, the shorter-term trend shows the stubbornness of shelter rent inflation, which contributed to leave core CPI up by +0.28% month-on-month between July and August, the most in four months, and running at a one-month annualised rate of +3.4%.
European Central bank cut expected
Later today, at 1.15pm UK time, we get the outcome from the European Central Bank (ECB)’s latest monetary policy meeting. According to a Bloomberg survey, all 68 economists surveyed have nailed on a 0.25% cut later today, which if that is the outcome, would take the ECB deposit interest rate down to 3.5%, from 3.75% currently. For context, the ECB first cut rates back in June, but then paused in July. After today, the debate appears to be around the path ahead, and will-they-won’t-they cut again in the next couple of meetings later this year (in October and December). By way of reference, the latest (flash) Euro Area annual core CPI inflation rate in August was running at 2.8%, the lowest in four months.
What does Brooks Macdonald think?
We can most likely ignore the shelter rent-driven impact in yesterday’s US core CPI inflation data. Given the way that rent inflation is calculated (looking at all leases rather than just new leases), it is a lagging indicator. Instead, looking at more current measures of rental inflation such as US real-estate sites Apartment List and Zillow show a different story. In their national rent indices, these private measures of annual rent inflation are lower than they were immediately prior to the pandemic in 2020, and in the case of Apartment List, annual rent inflation is actually running negative. All in all, yesterday’s US inflation data looks benign-enough for the Fed to probably ignore it and continue to focus on the jobs side of its dual mandate. As for the markets, with the inflation data there or thereabouts versus expectations and not worryingly weaker, the flipside is that the data has reduced the chances for an outsized 0.50% cut from the Fed next week, with expectations now coalescing around a smaller 0.25% cut instead.
Please continue to check our blog content for the latest advice and planning issues from leading investment firms.
Alex Kitteringham
12th September 2024