HG MARKETS:

Preliminary statistics released on Monday indicated that German inflation dropped to its lowest level since February 2021, supporting the dovish position of the European Central Bank on another interest rate decrease next month. According to data from the federal statistics office, German inflation in September decreased marginally more than expected to 1.8%. Based on data that was harmonized for comparison with other European Union nations, analysts surveyed by Reuters had predicted a reading of 1.9% in September, following a year-over-year increase in consumer prices of 2.0% in August. With a 2% inflation objective, the European Central Bank (ECB) has already lowered interest rates twice this year, and markets have recently turned to factor in the likelihood of another quarter-point cut in October.

Core inflation, which does not include erratic energy and food prices, decreased from 2.8% in August to 2.7% in September. In two other large economies in the euro zone, France and Spain, inflation had already started to decline. Early on Monday, data indicated that Italy’s inflation had decreased as well. Since Germany releases its inflation statistics one day ahead of the euro zone, economists closely monitor German inflation data. Reuters polled experts and predicted that in September, inflation in the euro zone will drop even more to 1.9% from 2.2% in August. The large base impact from energy prices a year ago is the main reason why the ECB always anticipated the September euro zone reading to be low. Nevertheless, the ECB has cautioned that inflation may increase over the next months.

On Friday, the Dow Jones Industrial Average (DJIA) reached a new high as traders examined new data that seemed to indicate that inflation reduction efforts are continuing. Wall Street reported increases for the third week in a row. The 30-stock Dow reached an all-time and session high of 42,313.00, up 137.89 points, or 0.33%. In the meantime, the Nasdaq Composite finished 0.39% lower at 18,119.59 and the S&P 500 saw a minor decline of 0.13% to 5,738.17. The tech-focused index was negatively impacted by a 2% decline in Nvidia (NASDAQ:NVDA). The weekly winning streaks of all three main indices continued, with the Nasdaq gaining over 1% and the S&P 500 and Dow adding roughly 0.6% each. Data on inflation gave investors hope that the Federal Reserve would be more confident in its decision to keep cutting interest rates.

The Fed’s favorite inflation indicator, the personal consumption expenditures (PCE) price index for August, increased by 0.1% as predicted by experts.  PCE grew by 2.2% annually, little less than the expected 2.3%. There will be a ton of employment data released in the coming week, with the September jobs report on Friday taking center stage.