U.S. and European Markets Jump 1% After Inflation Worries Eased

Barry Adams
12 Mar, 2024
New York City

Popular technology and semiconductor stocks started to rise again as investors looked over the most recent report on inflation. 

The stock rally continued in Tuesday's trading after struggling in the previous two sessions in a row after the overall inflation in February met investors' expectations. 

The S&P 500 index advanced 0.5%, and the Nasdaq Composite gained 0.8%. 

Last week's healthy labor market reports has supported positive market sentiment, and the easing of inflation has reaffirmed the US. economy's resilience. 

Later in the week investors are looking forward to the release of the producer price inflation report and the Federal Reserve's policy meeting outcome at the end of a two-day meeting on March 19. 

 

U.S. Consumer Inflation Unexpectedly Edge Higher

Consumer price inflation in February unexpectedly increased to 3.2% from 3.1% in the previous month, the U.S. Bureau of Labor Statistics reported Tuesday. 

The rising cost of shelter and gasoline contributed about 60% of overall inflation as rents continued to rise across the nation. 

On a monthly basis, inflation held steady at 0.4% and matched the rate in January. 

Core inflation, which excludes food and energy prices, rose at a slower annual pace of 3.8%, compared to 3.9% in January. 

Prices of food, shelter, new vehicles, and medical care continued to rise, but at a slower pace in the month. 

Food price inflation slowed to 2.2% from 2.6%, housing costs eased to 5.7% from 6.0%, new vehicle prices rose 0.4% from 0.6%, and medical care inflation eased to 2.9% from 3.0%. 

However, transportation costs accelerated to 9.9%, compared to 9.5% in the previous month. 

 

U.S. Indexes and Yields

The S&P 500 index increased 0.5% to 5,146.28, and the Nasdaq Composite advanced 0.8% to 16,153.36. 

The yield on 2-year Treasury notes increased to 4.53%, 10-year Treasury notes inched up to 4.09%, and 30-year Treasury bonds edged down to 4.26%.

WTI crude oil increased $0.23 to $78.18 a barrel, and natural gas prices decreased 5 cents to $1.70 a thermal unit.

Gold decreased by $20.87 to $2,161.63 an ounce, and silver fell 21 cents to $24.15. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 102.94.

 

U.S. Stock Movers

Oracle Corp. increased 11.5% to $127.26 after the database and cloud computing company reported better-than-expected quarterly earnings. 

Kohl's Corp. declined 2.5% to $26.50 after the department store chain operator reported better-than-expected quarterly results but issued a weak outlook.

On Holding plunged 14.5% to $28.75 after the Swiss shoemaker reported weaker-than-expected revenue of CHF 447.0 million and net income swung to a loss of 5 Swiss cents per share. 

Southwest Airlines declined 8.5% to $30.93 after the regional airline said it plans to reduce its capacity and reevaluate its financial projections for 2024 in light of persistent aircraft deliveries from its sole supplier, Boeing. 

The airline also said leisure revenue in the first quarter was lighter than expected and estimated unit revenue to range from a flat to a 2% increase from a year ago, but lower than an increase of as much as 4.5%. 

 

New Record Highs In Paris and Frankfurt 

European markets hovered near record highs amid interest rate uncertainties and mixed economic data in recent days. 

In early morning, benchmark indexes in Frankfurt, Paris, and London traded around the flatline as investors debated future rate paths, the global economic backdrop, and the ongoing weakness in consumer spending in the eurozone. 

However, market indexes in Paris and Frankfurt traded at new highs after the U.S. inflation met investors' expectations, supporting the case for the Federal Reserve to lower rates as early as June. 

 

UK Wage Growth Slowed, Unemployment Rate Expanded 

On the economic front, UK wage growth in the three months to January rose at the slowest pace since October 2022, the Office for National Statistics reported Tuesday. 

Regular weekly pay, excluding bonuses, rose 6.1% to £627 per week, slower than the 6.2% rise in the previous three months. 

Adjusted for inflation, regular pay increased 1.8%. 

Total pay, including bonuses, rose at a slower pace to £672 per week, and the growth eased to 5.6%  from 5.8%.  

The wholesaling, retailing, hotels, and restaurants sectors saw the largest annual regular growth rate at 7.2%, followed by the manufacturing sector with a 6.8% increase and the finance and business services sector with a 6.6% rise.

The unemployment rate in the three-month period to January increased to 3.9% from 3.8% in the previous three-month period, and employment levels eased to 75%. 

The number of people claiming jobless benefits in February increased by 16,800 from the previous month and 85,800 from a year ago to 1.585 million. 

The number of job vacancies declined by 43,000 in the three-month period to January to 908,000, and the vacancies declined from the previous quarter but are still significantly above pre-pandemic levels. 

The U.K. is battling with long-term sickness, and inactive people who are neither looking for work nor employed have increased to 21.8% of the population, or a near-record 2.7 million. 

 

Germany's Inflation Downtrend Continued in February

Germany's inflation eased to an annual pace of 2.5%, down from 2.9% in January and 3.7% in December, the Federal Statistical Office confirmed Tuesday. 

The inflation rate in the eurozone's largest economy has been cooling and dropped to the lowest rate since June 2021, when inflation stood at 2.4%. 

"The price situation for energy products continues to ease. The increase in food prices has slowed markedly and is now below the overall inflation rate for the first time in more than two years," said President Ruth Brand, President of the Federal Statistical Office. 

Weakening in energy prices drove the overall inflation lower, and the energy prices in February were 2.4% lower than in the same month a year ago, despite the ending of the government's energy subsidy in January. 

Energy prices for households declined at a faster annual pace of 3.6% in February, despite the introduction of higher carbon prices since the beginning of 2024.  

Excluding energy prices, the inflation rate was 3.1%, and excluding food and energy, the inflation rate was 3.4%. 

But still, hopes ran high after inflation dropped to the level last seen in mid-2021, in hopes that the worst of the pandemic-era cost of living crisis was nearing its end. 

Most of the decline in inflation is driven by the sharp fall in energy prices, and policymakers cannot take credit for the steady fall in inflation because prices are still significantly higher than pre-pandemic 2019 despite multiple interest rate hikes. 

 

Europe Indexes and Yields

The DAX index increased by 1.2% to 17,965.11, the CAC-40 index rose by 0.8% to 8,087.48, and the FTSE 100 index inched higher by 1.0% to 7,747.81.

The yield on 10-year German bonds edged up to 2.29%; French bonds inched higher to 2.74%; the UK gilts edged lower to 3.92%; and Italian bonds inched higher to 3.60%.

The euro edged higher to $1.093, the British pound inched higher to $1.278, and the U.S. dollar held steady at 87.67 Swiss cents.

Brent crude increased $0.19 to $82.40 a barrel, and the Dutch TTF natural gas gained by €0.02 to €24.95 per MWh.

 

Europe Stock Movers

Energy stocks advanced following the rise in crude oil prices after tensions in the Middle East. 

BP plc advanced 1.6% to 479.10 pence, and Shell PLC gained 0.8% to €29.53. 

Generali increased 1.9% to €22.65 after the Italian insurance company reported a record profit in 2023. 

Oracle Corp. jumped 12.7% to €117.78 after the U.S.-based database company reported better-than-expected quarterly earnings. 

Hill & Smith advanced 2.4% to 1,894.0 pence after the infrastructure products and services provider reported record annual sales. 

Persimmon plc declined 3.3% to 1,329.0 pence after the UK-based home builder reported slightly lower-than-expected 2023 revenue earnings. 

Wacker Chemie gained 6.3% to €110.30 despite the German chemical company estimating a slight decline in 2024 revenue and earnings. 

Porsche Automobil SE increased 1.3% to €47.44 after the sportscar maker lifted its dividend but lowered its 2024 profitability outlook because of the launch of new electric and hybrid vehicles. 

 

Asian Markets Turn Cautious Ahead of U.S. Inflation Report

Benchmark indexes in Asia edged lower amid cautious trading, and investors reacted to local corporate and economic news. 

Chinese lawmakers ended their weeklong parliamentary session and did not provide any substantial measures to revive the property market and stabilize financial markets. 

Moreover, China's housing minister said troubled property developers should pursue bankruptcy and restructuring alternatives, sending strong signals that the government is not likely to provide any financial assistance to troubled developers. 

 

Tokyo indexes Drop to 3-week Lows, Producer Price Inflation Rebounded

Benchmark indexes in Japan traded down to three-week lows, and the yen and Japanese bond yields rallied on the hopes of the Bank of Japan ending its ultra-loose interest rate policy next week. 

Investors are closely watching the outcome of spring wage negotiations between large corporations and workers unions, and expectations are high that real wages, after adjusting for inflation, are likely to rise more than 4% for the first time in nearly two decades. 

Faster wage increases are likely to provide a strong signal to policymakers that inflation is likely to stay above 2%, supporting the move to end negative interest rates. 

Producer prices in Japan rose 0.6% from a year ago in February amid widespread price increases, the Bank of Japan reported Tuesday. 

The measure of wholesale prices rose at the fastest pace since last October, when prices advanced 1.1%. Prices rose at a slower pace of 0.2% in December and January. 

Prices of food products, beverages, metal products, machinery, fuel, and coal rose at an elevated pace. 

The Nikkei 225 Stock Average declined 0.4% to 38,659.89, and the Topix index dropped 0.8% to 2,646.82. 

The yen edged up 0.3% to 147.39, and the yield on the 10-year Japanese government bond inched higher to 0.77%. 

Tech stocks were among the leading decliners, and Tokyo Electron, Screen Holdings, SoftBank, and Advantest declined between 2% and 3%. 

Leading exporters also declined, and Panasonic, Canon, Sony, and Mitsubishi Electric fell between 0.5% and 1.5%. 

Marubeni, Mitsui & Company, Itochu, and Sumitomo declined between 2% and 4%. 

 

Stock Buybacks Lift Market Mood In Hong Kong and Shanghai

Stocks in Shanghai struggled but advanced in Hong Kong in the hopes that more companies may buy back their shares amid weak prices. 

Investors are hoping that the recent wave of stock buybacks from companies is indicative of the company's confidence in their businesses, and stock prices are trading at discounts to the company's business valuations. 

Moreover, these purchases contribute to stabilizing financial markets. 

WuXi Apptec jumped 5% to ¥57.54 after the biotech company said it bought back 50 million yuan of its own shares in Shanghai on Monday. 

AIA Group increased 1.5% to HK$63.15 after the company said it acquired its stock for HK$12.7 million. 

Xiaomi jumped 9.5% to $14.68 after the smartphone maker launched its electric vehicle, making an entry in a crowded market suffering from oversupply and intense price competition. 

China Vanke rose 3.5% to $5.91 on the hopes that the government will provide financial support to the state-controlled home developer. 

Separately, Moody's Investor Services downgraded the home developer's debt to junk level, citing a rising liquidity crunch amid a falling market and growing price pressures to sell newly developed projects. 

Belatedly, Moody's Ratings replaced the company's investment grade "Baa3" rating with "Ba1," which is considered speculative and "subject to substantial risk." 

The CSI 300 index edged down 0.03% to 3,588.30, and the Hang Seng index increased 1.7% to 16,870.31. 

 

India Stocks Traded Around Record High

Stocks in Mumbai edged higher in early trading, and investors reviewed mixed global markets. 

The Sensex and the Nifty indexes inched higher after struggling in the last two sessions, and the Indian government bond yields held steady as the rupee strengthened against the U.S. dollar. 

Domestic and international investors stepped up investing in Indian stocks after investors searched for bargains. 

Gold and silver prices continued to move higher, tracking gains in international markets, on the growing consensus that the U.S. Federal Reserve and the European Central Bank are laying the groundwork to cut interest rates starting as early as June. 

Lower interest rates weaken the U.S. dollar and support a higher price of precious metals. 

Market sentiment on Dalal Street has been positive after the Reserve Bank of India said last week that the March fourth quarter gross domestic product is likely to surpass the government's estimate.

The central bank's estimated fiscal year 2024 economic growth is likely to cross 8%, higher than the government's estimate of 7.6%. 

The Sensex index increased 0.01% to 73,516.42, and the Nifty index edged up 0.01% to 22,334.45. 

On the Mumbai stock exchange, 193 stocks traded at their 52-week highs and 105 stocks traded at their 52-week lows.

ITC declined 1% to ₹409.20, and the company's parent, British American Tobacco, is looking to divest between a $2 billion and a $3 billion stake in the company as early as this week. 

Mahindra & Mahindra decreased 0.5% to ₹1,888.60, and the company's February vehicle sales increased 26% to 71,384 units, and production expanded 26% to 73,380 units from 56,551 units.