🌍 Market Report
Annual inflation in Germany dips below 2% to 1.9%, a significant achievement possibly driven by depressed economic activity in the country. In contrast, inflation in France exceeds expectations, rising by 0.6% in August. Moreover, French GDP is growing below expectations, setting an annual growth rate of 1% by 2024. Core inflation in the euro zone stands at 2.8%.
📈 In the US, data released yesterday showed economic growth above expectations, with GDP growth for the second quarter coming in at 3.0%, compared to 2.8% expected. Also, jobless claims are slightly weaker than anticipated, which could indicate strength in the labour market. The employment report will be released next week. Important: US inflation data will be released this afternoon with the release of the PCE index.
🇯🇵 In Japan, Tokyo core inflation data was released early this morning, showing an unexpected increase of 2.4% for August, higher than the expected 2.2%. Industrial production also came in below expectations, coming in at 2.8% for July versus the anticipated 3.6%.
📊 Market impact:
The data presented can be interpreted as follows: lower inflationary pressure in the euro area, together with weaker growth in France, suggests that the ECB may continue to cut interest rates and stimulate the economy. This could lead to downward movements in EUR/USD and upward movements in European equities.
🇺🇸 In the US, unusually strong growth and positive employment data reduce the need for urgent rate cuts, which could dampen US equity markets. This strengthens the dollar, coinciding with a bearish EUR/USD.
🌏 Japan, Asia’s second most influential economy after China, faces challenges. Unexpected increases in the inflation rate, coupled with a decline in industrial activity, are ingredients for a phenomenon called stagflation. In this scenario, monetary and fiscal tools are ineffective, complicating the revival of its economy. If they continue to tighten the yen, with downward movements in USD/JPY they run the risk of sinking the Japanese stock markets. If, on the other hand, they cut back on the asset to avoid a weakening of the economy, they will further fuel persistent inflation by making their imports more expensive. The scenario is extremely complicated.
🌐 Geopolitics:
Yesterday, Kamala Harris vowed a tougher approach to border security and said she would not withhold weapons from Israel in her first major TV interview since becoming the Democratic nominee. She defended Biden administration efforts to lower inflation and dismissed criticism of her policy shifts as her values remaining unchanged. Some consider that the interview showed clear contradictions in certain political positions, such as her change of stance on the fracking industry, criticising it in 2019 and supporting it since 2020.
