Market Wrap – Inflation Expectations Fall

The market is reacting to the latest news that the New York Federal Reserve’s 1-year inflation expectations have fallen to 6.2% from 6.8%, with inflation sensitive assets continuing the post-Fed trade.

This news will help sentiment that inflation has peaked already. Additionally, and slightly too far out to matter, the 3-year expectations from the New York Fed fell to 3.2% from 3.6%.

I think the Fed will draw some comfort by the fact that inflation is falling. On the back of this we have seen stocks moving higher, the US dollar falling against most of its currency counterparts.

Digging into the data the 5-year expectations fell to 2.3% from 2.8%, which is extremely comforting but far away. The New York Fed also said that fewer expect household financial situation to deteriorate in the year ahead than in June

The report also showed that New York Consumers see home prices up 3.5% in the next year vs 4.4% in June. Also, Year-ahead earnings growth unchanged at 3.0%, despite inflationary pressures.

Additionally, 1-year household income growth to 3.4% vs 3.2% in June and Consumers see a 40.2% likelihood of higher unemployment rate a year from now vs 40.4% prior. The Spending growth seen down 6.9% from 8.4% and rising share of consumers say credit is hard to get.

Due this good news, and also factoring the positive start to the week. US stocks are back to June levels, with the Nasdaq trading higher by nearly +1.0 percent and the S&P500 gaining +0.50 and DJIA the same.

Europe is also seeking strong gains, this is best seen by the Stoxx 600, which finished the European trading session with +0.8%, while the German DAX finished+0.9%.

Elsewhere, the French CAC finished the day higher by+0.9%, while the Italy MIB +0.6%, and the Spain IBEX +1.3%. The UK FTSE 100, which has been on a tear recently finished higher by +0.7%.