By Joyce Yu
Philadelphia, PA–Strong inflation data in August helps build the case for a December rate hike by the Federal Reserve. Wall Street opened higher by 0.25% to 0.3% on Monday in a cautious start to a week.
Global equities rose as investors shrugged off the latest North Korean missile test and turn their attention to the Federal Reserve’s meeting. The S&P 500 soared past the 2,500 mark for the first time ever on Friday. MSCI’s broadest index of Asia-Pacific shares outside Japan has already reached its pre-recession level in late 2007.
The Fed will hold a policy meeting on Tuesday and Wednesday. The markets expected the central bank to take another step toward monetary policy normalization.
This is in line with the global trend. Canada has already hiked twice in recent months and last week, the Bank of England also dropped a hint to raise interest.
“This week is all about global liquidity, with the Fed widely expected to announce the unwind of its balance sheet on Wednesday and the BoE now seemingly on the verge of a hike, potentially as soon as November,” ANZ analysts said in a note.
“With a backdrop of a number of central bank officials becoming increasingly hawkish, the stage is set for an unwind of market leverage and carry. We look for higher rates this week.”
Data released on Thursday showed US consumer prices had risen 0.4% in August, the biggest one-month gain since January.
“The report provided some much needed relief for the Fed by revealing that inflation pressures firmed in August which brought an end to five consecutive months of soft prints,” the Financial Times quoted analysts at MUFG.
“It will perhaps take more than one month of data to convince the Federal Open Market Committee that there is not something more fundamental going on in terms of the weak inflation and wage growth,” MUFG said.
The last weekend passed with no new provocation by North Korea, and Pyongyang’s nuclear ambitions will be center stage when U.S. President Donald Trump addresses world leaders at the United Nations on Tuesday, according to the Reuters.
While some details of Trump’s tax plans may emerge this week, there will be additional political uncertainties such as elections in Germany and New Zealand.
Nonetheless, investors tend to ignore political ructions and focus on the fundamentals with healthy growth in global economy and corporate earnings.
The post-financial crisis US equity rally this week overtook the 1949-56 run to became the second-strongest bull market in US history, according to the Financial Times.