Inflationary pressure in European countries continues to decline. Markets ruled out the possibility of RBA rate cut in November

On Monday, the Dow Jones Index (US30) gained 0.04%, and the S&P 500 Index (US500) rose 0.42%. The NASDAQ Technology Index (US100) closed positive 0.38%. The US stocks ended Monday in the green as investors digested Powell’s comments. During a speech at the National Association for Business Economics, Fed Chairman Powell emphasized that the Fed is not following a set path but suggested that two quarter-point rate cuts could still occur this year if the economy performs as expected. The odds of a 50 bps rate cut in November currently stand at 35%, down significantly from above 50% the previous week.

Equity markets in Europe fell steadily yesterday. Germany’s DAX (DE40) fell 0.76%, France’s CAC 40 (FR40) closed down 2.00%, Spain’s IBEX 35 (ES35) lost 0.76%, and the UK’s FTSE 100 (UK100) closed negative 1.01% on Monday. The CAC 40 is falling amid weakness in the automotive sector. Leading the decline was Stellantis NV, whose shares fell 14.7% to their lowest level since October 2022. The automaker cut its operating profit margin in 2024 to 5.5-7% from previous double-digit forecasts, citing worsening global industry conditions and increased competition from China. Renault, Vinci, and Kering were also among the top fallers, losing 5.6%, 5.1%, and 3.8%, respectively.

Germany’s inflation rate fell more than expected to 1.8% in September, the lowest since February 2021, while Italy’s fell to 0.8%. Inflation in France and Spain also fell more than expected last week, and markets now expect Eurozone inflation, due for release this week, to fall to the ECB’s 2% target. This will increase the likelihood of a further rate cut from the ECB.

WTI crude oil prices settled at $68.17 per barrel on Monday, finishing down 7% for the month as escalating tensions in the Middle East slightly outweighed rising supplies and weak demand. The market received little support from geopolitical risks, even after an Israeli airstrike killed Hezbollah leader Hassan Nasrallah in Beirut and bombed Houthi targets in Yemen. On the other hand, China’s ongoing economic problems, where manufacturing output contracted for the fifth consecutive month and service sector growth slowed, put additional pressure on prices. Traders remain doubtful that Beijing will take stimulus measures to boost demand. 

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was down 4.80%, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) were not traded due to holidays, while Australia’s ASX 200 (AU200) was positive 0.70%. 

Indonesia’s inflation hit a near three-year low. Indonesia’s annual inflation rate fell to 1.84% in September 2024, the lowest since November 2021, and remained within the central bank’s target range of 1.5% to 3.5%. Core inflation hit a 13-month high of 2.09% from August’s 2.02%. The CPI fell 0.12% monthly, maintaining its downward trend for the fifth month.

Judo Bank’s Australian Manufacturing PMI fell to 46.7 in September 2024 from 48.5 in August, indicating an eighth consecutive month of contraction in manufacturing activity at the fastest pace since May 2020. Retail sales in Australia rose 0.7% m/m in August 2024, up from an upwardly revised 0.1% increase in the previous month and above market forecasts of 0.4%. This was the fifth consecutive month of growth and the fastest pace since January.  Stronger-than-expected retail sales data for August boosted market sentiment and reduced the risk of an early rate cut by the Reserve Bank of Australia. Markets have ruled out the likelihood of an RBA rate cut in November, while the probability of such a move in December is currently around 71%.

S&P Global’s Vietnam Manufacturing PMI fell to 47.3 in September 2024, entering contractionary territory for the first time since March, down from 52.4 in August. The decline is mainly attributed to Typhoon Yagi, which caused temporary plant closures and production delays due to heavy rains and flooding. The S&P Global Malaysia Manufacturing PMI for September 2024 fell to 49.5 from 49.7 in the previous two months, the lowest reading since April. This is also the fourth month of contraction in the manufacturing sector, with output falling for four months, although the pace of contraction was modest.