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Oil prices are rising and retailers’ summer sales are coming to an end. Still, most economists expect euro zone inflation to fall to a near two-year low in September when official data is released on Friday.
The harmonized consumer price index for the 20-country bloc is expected to fall to 4.6 percent in September from 5.2 percent in August, the slowest annual price growth in the region since October 2021, according to a Reuters poll of economists.
If inflation falls as much or more than expected, it would support investors’ hopes that the European Central Bank has reached the end of its rate-hiking cycle after raising borrowing costs for the 10th time this month.
Inflation in transport services is expected to slow significantly, as last year’s German 9 euro monthly ticket will be removed from the year-on-year comparison from this month.
Mark Cus Babic, an economist at Barclays, also forecast “weaker year-on-year inflation in other categories, supported by base effects and weak dynamics in food, alcohol and tobacco.”
However, economists at Oxford Economics warned that the 30 percent rise in oil prices in euro terms since July means that “the disinflationary impact of energy prices will be significantly smaller than previously expected.”
The ECB is particularly focused on core inflation – excluding energy and food – to better manage underlying price pressures. Anna Titareva, an economist at UBS, predicted that figure would fall from 5.3 percent to 4.6 percent, the lowest level in over a year. Martin Arnold
Will the rise in Treasury yields continue?
U.S. Treasury yields rose to their highest level in a decade and a half after strong data and tight monetary policy from the Federal Reserve pushed investors to bet that interest rates would stay higher for longer.
A sustained rise in the coming week could spill over into other markets, hurting riskier assets like stocks.
The 10-year Treasury yield, which serves as a global benchmark for borrowing costs, briefly reached its highest level since 2007 on Friday. The two-year Treasury yield, which moves in line with interest rate expectations, hit its highest level since 2006 on Thursday. Both rose on Wednesday after the Fed signaled that its fight against inflation was not over, and extended those gains on Thursday after weekly jobless claims fell to their lowest level since January.
Economic data due to be released next week – including Case-Shiller home prices for July on Tuesday and consumer spending data on Friday – could move markets as investors examine any evidence that could support another Fed rate hike.
“We have the feeling that the scope for further increases in key interest rates is becoming scarce [economic] Headwinds are increasing, but until markets see real decisive evidence they will remain more cautious,” said Padhraic Garvey, strategist at ING.
Any further weakness in government bonds could weigh on stock markets as higher borrowing costs hit equity valuations. The S&P 500 hit its lowest level since June on Thursday and the tech-heavy Nasdaq Composite fell to its lowest level since August. Kate Duguid
Will sterling continue to fall?
Sterling hit a six-month low against the dollar this week as investors expect an end to the Bank of England’s interest rate hike cycle, and it may not have bottomed out yet.
The BoE surprised a majority of economists when it left interest rates at 5.25 percent on Thursday, a sharp decision by its monetary policy committee and pushing the pound lower.
The move followed official figures that showed the UK’s inflation rate was much weaker than expected in August, and figures on Friday showed economic activity fell by the most in September by the most since January 2021.
The pressure on the pound comes as the dollar has risen following a “loose pause” from the Federal Reserve this week and figures show US unemployment has fallen to its lowest level since January, reflecting the continued resilience of the US economy. reflects the economy.
The pound was trading at $1.2244 on Friday, 6.7 percent below its peak in July. It was the best-performing G10 currency at the start of the summer and is up just 1.2 percent against the dollar since the start of the year.
On Friday, investment banks HSBC and Nomura predicted the pound could fall to $1.18 before the end of the year.
“If incoming data continues to support the view that the U.S. economy is holding up better than that of the U.K., pressure on sterling is likely to be maintained for a while,” said Fawad Razaqzada, market analyst at trading platform City Index.
Salman Ahmed, global head of macroeconomic and strategic asset allocation at Fidelity International, said the pound needs to be a “carry currency” to remain supported, meaning its strength depends on the level of British interest rates. Mary McDougall
Source : www.ft.com