Weekly Kick Start | U.S. Inflation Slows Gradually in September

The past week has seen markets roiled by a surge in volatility, primarily driven by two major factors: the Israel-Hamas conflict and the release of crucial inflation data. These events had investors and analysts closely monitoring their potential impact on market dynamics. In this market week wrap, we’ll discuss the inflation numbers and its repercussions on the macroeconomic landscape.

On Top of Our Mind This Week: U.S. Inflation Slows Gradually in September

In September, US inflation showed a slight slowdown, with consumer prices rising 0.4% compared to the previous month. Year-over-year inflation remained stable at 3.7%. Core prices, excluding food and energy costs, increased 4.1% year-on-year, a minor decline from 4.3% in August. While there’s a moderation, core inflation is still higher than the Federal Reserve’s 2% target.

Evaluating the Factors Behind the Inflation Trends

The main drivers of last month’s inflation were higher housing costs, particularly in areas like Los Angeles. Rental prices and the cost of homeownership contributed significantly to the overall inflation index, accounting for more than two-thirds of the increase in core prices compared to a year ago.

The recent surge in hotel prices and airline fares also played a role. Gas prices remain significantly higher than pre-pandemic levels, impacting various industries and prompting some businesses to raise prices to compensate for rising costs.

Implications for your portfolios 

After the inflation data report, the market’s pricing for a rate hike by the end of December increased modestly. However, the majority of traders still believe that the Fed will not proceed with another rate hike. As we have argued, with mortgage rates at 23-year highs and savings rates at relatively low levels, monetary policy appears restrictive enough. We advise investors to remain patient and adopt a dollar-cost averaging strategy during this volatile period.

Market Recap This Week

In the wake of the Israel-Hamas conflict, crude oil experienced a significant upswing of 7.9%, while gold also gained traction, surging by 5.5%. These price increases were predominantly influenced by the geopolitical tensions in the region.

In the equities arena, the S&P 500 managed a modest 0.4% gain, offering some stability, while the Nasdaq faced a slight dip of 0.2%. Meanwhile, the Hang Seng Index witnessed a robust ascent of 1.9%, showcasing resilience in the face of global uncertainties.

On the fixed-income front, yields retreated, primarily in response to persistent concerns about sticky inflation figures, indicating a cautious stance among investors as they navigated these turbulent market conditions.

Source: Google Finance, Syfe Research, 7 October 2023 

What is on the Radar for This Week? 

In the upcoming week, all eyes will be on Jerome Powell’s speech, with the interest rate direction in focus. Simultaneously, Year-on-Year GDP data is set to be a critical economic barometer. This convergence of events will dominate market discussions in a week characterized by heightened uncertainty and potential market shifts.

Source: Reuters, abc News, Bloomberg, Google Finance

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