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- FTSE 100 up 45 points at 7,647
- UK GDP forecasts revised up
- Eurozone inflation lower than expected
Fed's preferred inflation gauge drops to 2-year low
The FTSE 100 remains upbeat after news the US Federal Reserve’s preferred inflation measure has dropped to a two-year low.
The core personal consumption expenditures price index, excluding food and energy, has dropped to an annual rate of 3.9% in August, according to figures from the Bureau of Economic Analysis, down from 4.2% in July.
That’s the lowest reading for Core PCE since September 2021, and could signal that America’s battle against inflation is still on track.
On a monthly basis, core PCE rose by just 0.1% in August, easing from July's 0.2% increase.
US PCE Core Deflator (M/M) Aug: 0.1% (est 0.2%; prev 0.2%)- US PCE Core Deflator (Y/Y) Aug: 3.9% (est 3.9%; prevR 4.3%)
- US PCE Deflator (M/M) Aug: 0.4% (est 0.5%; prev 0.2%)
- US PCE Deflator (Y/Y) Aug: 3.5% (est 3.5%; prevR 3.4%)
— LiveSquawk (@LiveSquawk) September 29, 2023
The headline PCE index rose 3.5% on-year last month, quickening slightly from a 3.4% increase in July, the third month in-a-row that year-on-year growth in personal consumption expenditures has quickened.
On a monthly basis, personal consumption expenditures increased 0.4% in August from July.
BoE calls on lenders not to underestimte hits to borrowers
The Bank of England has urged UK lenders not to underestimate the risk of loan defaults as higher inflation and increased interest rates hit more vulnerable borrowers.
In a letter to chief financial officers at financial institutions supervised by the BoE, published online, the central bank also warned them not to overestimate how much money they would recover when borrowers defaulted on loans.
Victoria Saporta, the BoE’s executive director for prudential policy, said: "We encourage further efforts by firms to challenge whether models capture risks associated with affordability, including the impact of higher inflation and interest rates on vulnerable borrowers or sectors.”
Saporta added that default experience has been limited in recent years, so firms need to examine if their post model adjustments (PMAs) are up to speed.
"Given higher inflation and interest rates, we believe it is important to challenge recovery assumptions used in loss given default and compensate for model and data limitations through PMAs," she added.
Lloyds survey shows drop in business confidence
Business confidence fell to 36% in September after the surge to an 18-month high of 41% in August, a survey showed today.
The Lloyds Bank (LON:LLOY) Business Barometer for September said the fall was a result of pullbacks in firms’ assessment of both their trading prospects for the year ahead and optimism regarding the wider economy.
From a sector perspective, the decline centred in retail and services, while outcomes for manufacturing and construction were mixed.
Regionally, only three areas – Yorkshire & the Humber, the East Midlands and the North West – reported higher confidence this month.
In tandem with the broad sentiment slide, hiring intentions were reined back compared with last month, although firms continued to attach high priority to attracting and retaining staff.
Hann-Ju Ho economics & market insights analyst at Lloyds Bank said: “While the gains in business confidence we saw in August have not been maintained, it’s important to see the wider trend clearly reflected in the data which paints a very different picture to this time 12 months ago, when the economy was in significant difficulties.”
“Although the economic environment remains uncertain with inflation and interest rate pressures playing their part, the recent decision by the Bank of England to leave interest rates unchanged is likely to help businesses feel more upbeat about the future, which may underpin confidence in the last three months of the year.”
Good mood looks set to extend to the US
The bright mood in Europe looks set to extend to the US with stocks set to end a drab month on the front foot with futures pointing to a strong open on Friday.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.5% higher, while those for the S&P 500 rose 0.6%, and contracts for the Nasdaq 100 futures were up 0.7%.
Strong results from Nike Inc (NYSE:NKE) lifted the mood with the Eugene, Oregon-based retailer up 8% in pre-market deals.
Whether the good mood holds could depend on how the US Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures price index prints today.
It is expected to reach an annualised rate of 3.9%, down from 4.2% in July. Headline PCE is projected to be 3.5% in August, up from 3.3% in July.
Elsewhere, The University of Michigan will release the final September reading of its consumer sentiment index, which economists anticipate will be the same as the preliminary level of 67.7.
Meanwhile, John Williams, head of the Fed’s New York branch, will tour Long Island and meet leaders in business and government, and is expected to deliver remarks about the economic outlook at the Long Island Association.
On Thursday, Chicago Fed President Austan Goolsbee said policymakers were at risk of overshooting on interest rates by putting too much emphasis on the idea that steep job losses are needed to quell inflation.
The FTSE 100 is up 0.8%, while in Europe the Dax in Frankfurt is 1.0% to the good, and the Cac 40 in Paris is also 1.0% higher.