New york: Global markets were mixed on Tuesday amid rising US inflation, led by tariffs, while the Fed's future policy roadmap remains unclear as the bank remains cautious.
According to Anadolu Agency, the US' Consumer Price Index (CPI) rose 0.3% on a monthly basis in June, aligning with estimates, but it soared 2.7% on an annual basis, surpassing expectations. This marked the highest monthly inflation since January and the highest annual inflation since February. The core CPI, which excludes volatile categories like energy and food, climbed 0.2% month-on-month and 2.9% year-on-year in June. Markets had anticipated a 0.3% monthly increase and a 3% yearly rise. In May, the core CPI increased by 0.1% on a monthly basis and 2.8% on a yearly basis.
Analysts suggest that the Federal Reserve may delay any rate cuts due to tariff-related risks until there is more clarity on inflation and the labor market outlook. While the likelihood of a rate cut in September has diminished, the possibility of two total rate cuts remains unchanged in the money markets. The upcoming Producer Price Index (PPI) data is now in focus as investors seek clues about the trajectory of US inflation.
Meanwhile, the Fed faces political pressure from President Donald Trump, who has called for lower rates, arguing that a 3-point reduction would save $1 trillion annually. Trump has also mentioned Treasury Secretary Scott Bessent as a potential candidate to replace Fed Chair Jerome Powell. Fed officials remain cautious as tariffs are expected to drive inflation higher in the latter half of the year, potentially pushing core inflation to 3% by year's end.
In response to inflation concerns, the US 10-Year Treasury bond yield rose to 4.49%, and the US Dollar Index increased to 98.6, reflecting expectations of a cautious Fed stance. The stronger dollar pressured gold, with the ounce price dropping 0.6% to $3,325 before recovering to $3,337. Brent crude oil prices saw a slight uptick of 0.1% to $68.4 per barrel.
US enterprises reported mixed second-quarter earnings. JPMorgan Chase's net profit fell 17%, causing its shares to drop around 1%. In contrast, Wells Fargo's profits grew by 0.6%, though its shares decreased by 5.5%. Citigroup reported a 25% increase in profits, with shares rising nearly 4%. Nvidia shares gained 4% following assurances from the US government about export licenses, allowing continued sales of its H20 AI chips to China, positively impacting the Nasdaq.
On Tuesday, the S and P 500 fell 0.4%, the Dow Jones 0.98%, while the Nasdaq rose 0.18%. US indexes began Wednesday on a negative trajectory. European stock markets experienced a sell-off on Tuesday due to the impact of US tariffs on the region's economic outlook. Investors are now focusing on the eurozone trade balance data expected on Wednesday.
Bank of England Governor Andrew Bailey emphasized the need for the International Monetary Fund (IMF) to address global economic imbalances, particularly between China and the US. The ZEW Economic Sentiment Index, which measures institutional investors' and analysts' expectations for the next six months, rose by 5.2 points to 52.7 in July, indicating optimism for the region's economy.
On Tuesday, the FTSE 100 fell 0.66%, the DAX 40 by 0.42%, the FTSE MIB 30 by 0.66%, and the CAC 40 by 0.54%. European indexes started Wednesday on a negative trend.
In Asia, markets were mixed amid optimism over the potential resumption of Nvidia's AI chip shipments to China, boosting tech stocks. Chinese Vice Premier He Lifeng stated that the country is enhancing its industrial modernization efforts, which are expected to benefit global industry and supply chains. The Nikkei 225 rose 0.5%, the Hang Seng Index 0.4% near closing on Tuesday, while the Kospi Index fell 0.8% and the Shanghai Composite Index 0.1%.