Weekly Digest: Hot U.S. Inflation Data, ECB Rate Hike


10 minutes read

Sep 16, 2023

ECB Head Christine Lagarde

16/09/2023: U.S. consumer prices surged more than expected in August, making it the hottest month for inflation in 2023, ECB hikes rates to a record level despite the threat of recession, euro set for the longest weekly losing streak since 1997. And more.

💡Quote of the week

Bloomberg’s Marcus Ashworth on the ECB’s interest rate hike: “Indeed, 4% is a round number but it may prove one step too far for the euro economy to stay out of recession.”

Investment news

dollars burning in a man’s wallet

🇺🇸 📈 U.S. inflation report packs a punch. In August, prices surged more than expected, making it the hottest month for inflation in 2023. Prices rose 0.6% for the month and 3.7% for the year, higher than what experts predicted. When we remove food and energy from the equation, core inflation also went up by 0.3% and 4.3%, beating forecasts. The Federal Reserve watches core inflation closely as it's a better indicator of long-term trends. (CNBC)

The main culprit behind the price spike was energy costs, which shot up by 5.6% in just one month, including a 10.6% jump in gasoline prices. Food prices also increased by 0.2%, and housing costs, a big part of the inflation picture, rose by 0.3%. Rent for homes and owners' equivalent rent went up too. Airfares saw a 4.9% rise, but they're still cheaper compared to last year. Used car prices dropped by 1.2%, down 6.6% from last year, and transportation services rose by 2%.

🇪🇺 🏦 ECB raises interest rates amid stubborn inflation concerns. This marks the ECB's 10th consecutive rate hike. The deposit rate for commercial banks now stands at 4%, the highest since the euro's inception in 1999. Inflation in the eurozone remains above 5%, with the ECB forecasting a decline to 3.2% in 2024 and 2.1% in 2025. (The Guardian)

Global investors are speculating that central banks worldwide may be nearing the end of their aggressive rate-hiking campaigns in response to surging post-Covid and Russia-Ukraine conflict inflation. ECB President Christine Lagarde suggested that rates might have peaked but emphasized that borrowing costs would remain elevated until inflation aligns with the ECB's 2% target.

👆 European stocks edge up as ECB lifts interest rates. The pan-European Stoxx 600 index closed 1.52% higher on Thursday, building on a 0.3% increase prior to the ECB announcement. (The Guardian)

The basic resources sector saw a 4.2% increase after China's central bank announced its plan to boost its economy gradually. However, not everyone joined the party. Autos dipped 0.4%, partly due to concerns over an EU probe into Chinese electric vehicle subsidies and potential retaliatory actions.

🎢 China's economic rollercoaster. China's recent economic performance has thrown a few surprises into the mix. In August, retail sales saw a stronger-than-expected increase of 4.6% compared to the previous year, surpassing the projected 3% growth. This was an improvement from July's 2.5% year-on-year growth. (CNBC)

However, fixed asset investment only managed a 3.2% year-on-year increase in August, missing the expected 3.3% and slowing down compared to July's 3.4%. This dip was primarily due to challenges in the real estate sector and a slowdown in infrastructure investments.

Chinese officials have expressed confidence that recent policy changes will help stabilize the real estate market, but it may take some time to see significant improvements.

Gold shows strength as China's economic data reshapes dollar dynamics. Gold had a moment in the spotlight on Friday, gaining 0.4% to reach $1,917.59 per ounce, thanks to some noteworthy economic data from China. The yuan's rise against the dollar after positive Chinese economic news made gold more appealing to Chinese buyers.

U.S. gold futures also inched up by 0.3% to $1,938.90, showing that gold wasn't ready to fade into the background just yet.

As we watch the yuan and the dollar do their dance, the upcoming Federal Reserve policy meeting on September 19-20 remains a key factor to watch.

💶 Someone get that euro a motivational pep talk! For nine whole weeks, the euro has been dropping like it's hot, and it's the longest series of losses it's seen since it came into existence. The euro has shed 5.6% against the dollar since its mid-July peak and is currently lounging near its lowest levels since March. (Bloomberg)

So, why is the euro feeling a bit blue? Well, traders have been bidding 'auf Wiedersehen' to the euro lately, as they think the European Central Bank (ECB) might be done with its rate-hiking adventures. They believe the ECB is facing a challenge in tightening its monetary policy further because the economy isn't exactly doing well right now. This belief got a boost when ECB President Christine Lagarde hinted that interest rates might have reached their peak after the 10th rate hike.

So, the euro has some reflecting to do while it's down 0.5% this week, currently trading at $1.07. Will it bounce back, or will this losing streak continue? Stay tuned for more currency drama!

📸 Image of the week

A meme mocking the current global financian situation


Lying politician holding fingers crossed behind his back

🤔 We live in an age of political shamelessness. “Today, politics is an odd mixture between a profession and a branch of entertainment. It’s a profession in the sense that most of these officials depend on their positions for income and get richer the further they climb up the political ladder. It’s a branch of entertainment in that they need to keep themselves before the public eye if they are to have any chance of succeeding.” (Bloomberg Opinion)

“Politicians are preselected for shamelessness. At the very least, they have to be willing to live in glass houses. But most today go out of their way to court publicity — indeed, politics is as much the art of self-promotion as it is the art of governing,” writes Adrian Wooldridge.

What else is happening

Putin and Kim attend a meeting at the Vostochny Cosmodrome, Russia.
Putin and Kim attend a meeting at the Vostochny Cosmodrome, Russia. Source: KCNA via REUTERS

🇷🇺 🇰🇵 Russia-North Korea summit. Russian President Vladimir Putin and North Korean leader Kim Jong Un met for a summit that had a message for their rivals. Despite their geopolitical isolation, they wanted to show they have allies and push back against U.S.-led sanctions. While they deny secret arms deals, they did pledge to enhance defense cooperation and build satellites together. (Reuters)

"Putin and Kim would both gain from a transactional bargain but they would also gain geopolitically by giving off the impression that their nuclear-armed countries are cooperating militarily and sending a warning about potential consequences to America’s allies and like-minded partners that support Ukraine," said Duyeon Kim, of the Center for a New American Security.

🇱🇾 “Disastrous beyond comprehension.” In the wake of devastating floods that followed the bursting of two dams in Derna, Libya, the situation has been described as 'disastrous beyond comprehension.' Analysts say over 10,000 people are missing, and the confirmed death toll has already exceeded 5,300. (The Guardian)

Hichem Chkiouat, the minister of civil aviation, told Reuters: “Bodies are lying everywhere – in the sea, in the valleys, under the buildings. I am not exaggerating when I say that 25% of the city has disappeared. Many, many buildings have collapsed.”

And finally…

Agronomist Rubens Braz with his Giant Indian Urubu rooster named Galalau in Formosa, Brazil.
Agronomist Rubens Braz with his Giant Indian Urubu rooster named Galalau in Formosa, Brazil. Source: REUTERS/Ueslei Marcelino/File Photo

🐓 Brazilian farmer's big birds bring big bucks. When Brazilian farmer Rubens Braz embarked on breeding chickens, he never imagined that his passion would lead to a business hatching giant profits – and even bigger birds. Now, two decades later, he's the proud farmer of enormous roosters that tower over a meter tall. (Reuters)

These colossal birds, known as 'Giant Indian Roosters,' are on the verge of being recognized as a new breed. They don't just command attention for their impressive size but also for their price tags, fetching up to $4,000 each. It's like having a small dinosaur in your backyard, but one that won't eat you out of your house.


See you next week!


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(Main picture credits: https://commons.wikimedia.org/wiki/File:Women_in_Economic_Decision-making_Christine_Lagarde_%288414041294%29.jpg)


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