Danske Research Team
Danske Bank A/S
Overview: Underlying inflation has moderated in the US and is also more wellbehaved in euro area. Inflation pressures ease gradually with weak goods inflation and in the case of US, cooling job market and lower wage growth. In the euro zone, wage growth remains sticky despite some easing in the latest Q2 data. Concerns of slowing global growth have driven oil and metal prices lower, which has sharply weighed on markets’ short-term inflation expectations. We expect the ECB to cut rates on a quarterly basis and the Fed in every meeting until June.
Inflation expectations: Market-based short-term inflation expectations have declined with global oil prices. Consumers’ inflation expectations have also moderated, but more gradually. The level of most inflation expectations measures has now returned close to pre-pandemic averages.
US: The August CPI was close to expectations on headline level (+0.2% m/m SA & 2.5% y/y; July +0.2% / 3.2%). Core inflation was slightly faster than expected (+0.3% m/m SA & 3.2% y/y; July +0.2% / 3.2%), but the uptick was mostly driven by owners’ equivalent rent (OER). Contribution from other services sectors, core goods, food and energy were close to expectations. As the OER lags changes in the rental market by 10-11M, the upside surprise will not derail the Fed from cutting rates next week, but the reading still supports our case for only a 25bp move.
Euro: Dropping to a three-year low, headline inflation for August was 2.2% y/y – in line with expectations – driven mainly by base effects in energy prices. The underlying price pressure continued to be sticky as core inflation stood unchanged at 2.84% y/y, with the monthly measure at 0.27% m/m SA. This attributed to continued strong services inflation at 0.42% m/m SA (4.15% y/y) stemming from elevated cost pressures amid high wage growth and the strong labour market. Coupling this with rising goods selling price expectations, we foresee core inflation to only gradually decline and hit 2% in Q4 2025, while headline inflation could hit 2% next month and is expected to average 2.1% in 2025.
China: August CPI rose from 0.5% y/y to 0.7% y/y but core CPI dropped to 0.3% y/y from 0.4% y/y, a two-year low. PPI dropped to -1.8% y/y from -0.8% y/y.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.