The SNB has revised its inflation projections downward. Successive announcements of support measures in China.
After the central banks, the markets’ attention turned to the evolution of the situation in the American and European economies, which will determine the pace of future rate cuts.
However, the SNB was the last of the world’s major monetary institutions to disclose its decision. For his last intervention, T. Jordan focused on moderation by announcing a 25 basis point reduction in the key rate, bringing it to 1%. The message is clear, inflation and the economy are under control, but the institution preferred to keep ammunition to counter a possible rise in inflation or a franc that is too strong. Indeed, in August, inflation fell more than expected, to 1.1%, after 1.4% in May, thanks to the drop in prices of imported goods and services and is today mainly driven by rising prices. services. Consequently, the SNB revised its inflation projections downward for the current year as well as the next and maintained its growth projections at 1% for 2024.
In Europe, economic activity deteriorated according to the flash PMI indices published on Monday. Blame it on the aftermath of the Olympic Games in France and the persistent gloom of German industry. This data calls for a faster rate cut from the ECB in order to support the region’s economy.
While in the United States, activity remained firm in September, with a Flash S&P composite index coming out at 54.4 versus 54.3 expected. The services sector once again proved solid while the manufacturing sector remains in a contraction zone for the second consecutive month. GDP growth was confirmed at 3% annualized and the PCE consumer price index slowed in August to 2.2%, compared to 2.5% previously. However, underlying inflation, corrected for volatile prices, rebounded to 2.7% compared to 2.6% in August. These figures confirm that the Fed did the right thing by lowering its rates by 50 points, and now focusing instead on the labor market; inflation, approaching its target, is no longer a threat.
Despite this flow of data, what drove the markets last week were the successive announcements of support measures from the Chinese central bank. Through rate reductions, in particular the bank reserve rate, its key rates but also mortgage rates and by a massive injection of liquidity into the stock market. Thus, China finally intends to stimulate its economic activity which is struggling to recover from the covid-19 crisis and is determined to achieve its objective of 5% GDP growth.
This news galvanized the markets. The S&P 500 index rose by +0.62% over the week, that of technology stocks, the Nasdaq 100 ended at +0.95%. In Europe, driven by luxury, the Stoxx Europe 600 gained +2.69% and Chinese stock markets soared by +25.52% for the CSI 300 and +21.91% for the Shanghai Composite.
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