Customers buy eggs at Sprouts grocery store on April 12, 2023 in San Rafael, California.
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This report comes from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open keeps investors updated on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Inflation higher than expected
USA According to the Labor Department, the consumer price index rose 0.2% in September, bringing the annual inflation rate to 2.4%. Both figures were 0.1 percentage points higher than the Dow Jones Average. Still, the annual growth rate is at its lowest level since February 2021.
The market is too hot for comfort
Major U.S. stock indexes fell on the hot CPI report. this S&P 500 Index Down 0.21% Dow Jones Industrial Average Down 0.14% Nasdaq Index down 0.05%. Asia-Pacific stocks were mostly higher on Friday. The KOSPI fell about 0.15% as the Bank of Korea cut interest rates by 25 basis points to 3.25%, its first rate cut since 2020.
China “does whatever it takes”
China’s Finance Minister Lan Fo’an held a press conference on Saturday to introduce “increased efforts” in fiscal stimulus policies State Council Information Office. The move comes after markets were disappointed with Tuesday’s press conference on economic measures. Chen Li, chief global strategist at Alpine Macro, told CNBC that this is Beijing’s “moment at all costs.”
The bank is not yet clear
Lower interest rates tend to be good for banks. As yields on money market funds and other assets fall, the flight of cash from bank accounts will slow. This lowers banks’ funding costs, while yields on banks’ income-generating assets do not fall as quickly. But that expectation may not be so perfectly realized this time.
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Artificial intelligence-related stocks, such as semiconductors and Big Tech companies, are soaring on the promise of new revenue streams and a revolution in how work is done. Higher prices mean they pose a barrier to entry for some investors. But one portfolio manager says there are cheaper ways to put artificial intelligence to work.
bottom line
If inflation becomes severe, interest rates will need to be raised to throw cold water on the economy and slow it down.
Atlanta Fed President Raphael Bostic agreed. “I’m totally willing to skip the meeting (to cut rates) if the data suggests it’s appropriate,” Bostic told The Wall Street Journal on Thursday.
The data shows this is indeed the case. both The September jobs report and consumer price index both came in higher than expected. “To me, this volatility probably means we should take a pause in November,” said Bostic, a voting member of the Federal Open Market Committee.
But Bostic acknowledges that it’s important to understand whether individual data points coalesce into a larger pattern, or whether they’re just “a jumble,” as Bostic puts it.
The futures market seems convinced these numbers are bad. According to the central bank, traders increased bets on rate cuts after digesting the CPI report. CME FedWatch Tool.
They now believe the probability of the Fed cutting interest rates by 25 basis points at its November meeting is 87.1%, up from 80.3%. The increase in stakes is small. But its implications are significant: Even after the CPI report was released, the market still seemed more concerned about a slowdown in the economy than that inflation remained sticky.
Initial jobless claims for the week ended Oct. 5 may add to those concerns.
But the number could also be bad. “This morning’s sharp increase in jobless claims is tied to hurricane-related distortions and is the tip of the spear of recent distortions in key economic data,” said Joseph Brusuelas, chief economist at RSM.
If “key recent economic data” is overall erratic and distorted, then perhaps the best thing we can do is wait and wait for this turmoil to be over.
– CNBC’s Jeff Cox, Samantha Subin and Hakyung Kim contributed to this article.
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