Inflationary pressures continue to ease in the UK and New Zealand

On Tuesday, the Dow Jones (US30) Index was down 0.75%. The S&P 500 Index (US500) decreased by 0.78%. The NASDAQ Technology Index (US100) closed negative 1.37%. 

The Biden administration is discussing imposing country-specific restrictions on sales of advanced artificial intelligence chips. This hurt the stocks of chip and chip companies. ASML shares fell by 16.5% after lowering its projection, which put pressure on other chip makers, including Nvidia (-4.5%), Broadcom (-3.5%), AMD (-5.2%), and Intel (-3.3%). In addition, shares of energy companies, namely Exxon Mobil (-2.2%) and Chevron (-1.4%), were under pressure amid a sharp decline in oil prices. 

Boeing (BA) shares rose more than 2%. They led the Dow Jones Industrials after receiving a $10 billion credit line from lenders and after filing a $25 billion financing request to counter a prolonged strike that shut down a Seattle manufacturing center for a month. Apple (AAPL) is up more than 1% and set a record high after unveiling a powerful new iPad mini equipped with Apple Intelligence artificial intelligence features.

Canada’s latest CPI report revived bets that the Bank of Canada may cut rates by 50 bps next week. The annual inflation rate fell to 1.6% in September, the lowest since February 2021, and is now below the Central Bank’s 2% target. Meanwhile, the annualized CPI Median and CPI Trimmed-Mean, which are the Central Bank’s two preferred measures of core inflation, were unchanged at 2.3% and 2.4%, respectively. The Bank of Canada will decide on monetary policy on October 23. Last month, Bank Governor Tiff Macklem opened the door for more rate cuts if inflation and the economy slow faster than expected.

Equity markets in Europe were declining Tuesday. Germany’s DAX (DE40) fell by 0.11%, France’s CAC 40 (FR40) closed down 1.05%, Spain’s IBEX 35 (ES35) gained 0.67%, and the UK’s FTSE 100 (UK100) closed down 0.52%. Eurozone industrial production rose by 1.8% m/m in August, matching expectations and the largest increase in 1 year. German economic growth expectations for October in the ZEW survey rose by 9.5 to 13.1, beating expectations of 10.0. Swaps estimate the odds of a 25bp ECB rate cut at Thursday’s meeting at 97%.

The UK annual core inflation rate fell to 3.2% in September 2024 from 3.6% in previous months, the lowest since September 2021. The data was below market estimates of 3.4%, with the annualized CPI services rate falling (4.9% vs. 5.6% in August) and the annualized CPI goods rate falling further (-1.4% vs. -0.9%).

WTI crude oil prices fell by 4.4% to $70.6 per barrel on Tuesday following reports that Israel may avoid strikes on Iran’s oil infrastructure, easing fears of major supply disruptions in the region. The IEA also cut demand growth estimates, citing near-record spare capacity in OPEC+ and slowing demand in major markets such as China, where consumption fell by 500,000 bpd in August for the fourth straight month. Global oil demand is estimated to grow by just under 900,000 bpd in 2024 and 1 million bpd in 2025, a slowdown from the 2 million bpd seen since the pandemic. 

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was up 0.77%, China’s FTSE China A50 (CHA50) fell by 2.78%, Hong Kong’s Hang Seng (HK50) was down 3.67%, and Australia’s ASX 200 (AU200) was positive 0.79%. 

New Zealand’s annual inflation fell to 2.2% in the third quarter from 3.3% in the previous quarter, the lowest since March 2021. Inflation is within the Reserve Bank’s target range of 1–3%, paving the way for significant interest rate cuts in the coming months. The Central Bank has cut the official money rate by 75 basis points since August and is expected to continue cutting rates over the next year to stimulate the economy. Markets are now pricing in a high probability of another 50 basis point rate cut by the RBNZ at the last meeting of the year in November.