The annual rate for core PCE (the Fed’s preferred measure of inflation) increased to 2,7% from 2,6% the prior month. The US Federal Reserve (US Fed) cut the policy rate by 50bps, a more meaningful move than many in the market had anticipated. The median forecast for the interest rate trajectory over the forecast period also declined, indicating more cuts pencilled in. Federal Reserve Chair, Jerome Powell, referred to the decision as a “recalibration” of policy. 

Chinese inflation figures printed at 0,6% in August, largely driven by higher food prices. Producer prices declined by 1,8%, much larger than anticipated and indicative of persistent deflationary forces. Chinese policy makers surprised markets with a comprehensive stimulus package to address weak economic momentum and an embattled property sector. This included monetary policy easing, support for the equity markets and support for the property sector. Later in the month, government committed to further fiscal spending to achieve the country’s economic growth target of 5,0%. While many remain sceptical that enough support will be forthcoming or that the country will ultimately be able to address the structural issues it faces, local and other related assets rallied after the announcements.

With services inflation and real wage growth still elevated, the Bank of England (BoE) kept interest rates on hold after the cut in August. Preliminary inflation for the Euro area printed at a three year low of 2,2% y-o-y, moving closer to the 2,0% target. The European Central Bank (ECB) cut its deposit rate by 25bps, the second cut since their easing cycle commenced. A unanimous vote was accompanied by weaker growth forecasts for the region. After two hikes, the Bank of Japan (BoJ) held policy rates steady, in line with expectations.

Weak demand prospects weighed on the oil price, even as OPEC+ producers delayed planned production increases to December and Hurricane Francis caused production shutdowns in the Gulf of Mexico. Data from the US Energy Information Administration (EIA) echoed poor demand conditions, showing US oil consumption for June declined to levels last seen during the pandemic.
 

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