Inflation In The United States Reached A Record Over The Past 30 Years

Fundamental analysis of Forex market

The US consumer price index increased by 0.9% to 6.2% (previous 5.4%) in annual terms, it’s well above analysts’ forecasts. And this has been the highest rate of inflation since 1990. With such a sharp rise in inflation, investors began actively rebalancing portfolios into US dollars, anticipating a rate hike soon. As a result, major US stock indices fell yesterday. By the end of the day, the Dow Jones Industrial Average decreased by 0.66%, the S&P 500 decreased by 0.82%, and the Nasdaq lost 1.66%.

The biggest increases in consumer prices were for electricity (30% vs. 24.8% in September) and gasoline (49.6%). Inflation also rose for new houses (3.5% vs. 3.2%); food (5.3% vs. 4.6%, the highest rate since January 2009); new vehicles (9.8% vs. 8.7%); clothing (4.3% vs. 3.4%), and medical services (1.7% vs. 0.9%).

In his last speech, US President Joe Biden said that reducing inflation was one of his policy priorities. Now, for Biden to keep his words, the US Federal Reserve needs to accelerate cuts in the QE program and raise interest rates.

According to the US Department of Labor, the number of new jobless claims in the USA reached 267,000, while analysts expected 260,000. This was the lowest number since March 2020.

European stock indices were mostly growing yesterday. German DAX added 0.2%, British FTSE 100 increased by 0.9%, French CAC 40 added 0.03%, Spanish IBEX and Italian FTSE MIB increased by 0.7% and 0.4%, respectively. Germany’s consumer price index increased by 0.5% to 4.6% level in annual terms. In the last month, energy prices in Germany rose by 18.6% in annual terms, food prices increased by 4.4%, and services prices increased by 2.4%.

Amid a surge in inflation, the US bond yields sharply increased yesterday. But surprisingly, gold prices also rose, though government bond yields usually have an inverse correlation with gold. Investors initially bought gold because Fed spokesman Clarida said Monday that the Federal Reserve has no plans to raise rates next year. But yesterday’s inflation data will likely change the Fed’s view.

Natural gas inventories showed an increase of 7 billion cubic meters (bcm) against an expected 10 bcm. European natural gas prices fell to their lowest level in more than a week as Russia is gradually increasing supply.

Crude oil inventories were 1 mln barrels compared to an expected 1.68 mln barrels. Despite the deficit, oil prices sharply decreased amid a sharp rise in inflation in the US yesterday.

Asian stock indices are trading flat today. Japan’s Nikkei 225 index has already gained 0.6% after the market opening. Japan’s stock market is rising on expectations that the country’s new Prime Minister Fumio Kishida will present a new economic stimulus package in the coming days. The weakening of the national currency also supports the market.

Chinese real estate developer Evergrande has officially declared bankruptcy. Evergrande needs to pay about $7.4 billion in bonds maturing next year. But Chinese indices reacted quietly to the news. China’s Shanghai Composite index increased by 1.15%, Hong Kong’s Hang Seng increased by 1.09%, and China’s blue-chip index added 1.61%.

Australia’s unemployment rate increased to 5.2% from 4.8%. Weak labor market statistics caused the Australian ASX 200 Index to decline 0.57%.

Main market quotes:

  • S&P 500 (F) 4,646.71 −38.54 (−0.82%)
  • Dow Jones 36,079.94 −240.04 (−0.66%)
  • DAX 16,067.83 +27.36 (+0.17%)
  • FTSE 100 7,340.15 +66.11 (+0.91%)
  • USD Index 94.88 +0.93 (+0.99%)

Important events for today:

  • Australia Unemployment Rate (m/m) at 02:30 (GMT+2);
  • Japan Industrial Production (m/m) at 04:00 (GMT+2);
  • UK GDP (q/q) at 09:00 (GMT+2);
  • UK Industrial Production (m/m) at 09:00 (GMT+2);
  • UK Manufacturing Production (m/m) at 09:00 (GMT+2);
  • ECB Economic Forecasts at 12:00 (GMT+2).