Annual US inflation declined further to below ~3% in the month of November, with underlying price pressures continuing to abate, which should further strengthen that financial markets might see the interest rate cut in the next March. Inflation, which is measured by the personal consumption expenditures (PCE) price index, saw a fall of ~0.1% in the previous month post it remained unchanged in October month, as per the Commerce Department’s Bureau of Economic Analysis.
PCE Price Index Rising
Over the 12 months ended November, PCE price index saw an increase of ~2.6% after rising ~2.9% in October month. October has been tagged as the first month since March 2021 in which annual PCE price index remained below 3%. If we exclude the volatile food and energy components, PCE price index saw an increase of ~0.1% in November, which matches December’s gain.
The US central bank decided to keep the interest rates steady in the prior week, with policymakers signalling that historic monetary policy tightening is nearing its end and decline in borrowing costs might come in 2024. Since the month of March 2022, the US central bank increased its policy rate by ~525 basis points to the present range of 5.25%-5.50%.
Given the cooling of inflation, households now have more income at their disposal. Consumer spending, which makes up for over two-thirds of the US economic activity, saw an increase of ~0.2% last month.
Japanese markets saw positive momentum
Amidst all these positive news regarding inflation and economic revival, the Japanese markets saw positive momentum on Monday, with the increase in frontline indexes. At the time of writing Japan’s Nikkei 225 was up by ~0.31% to trade at ~33,270.84 levels. This movement was supported by the prospects for the US rate cuts. These expectations also lifted the S&P 500 and Nasdaq in the 2H of the previous week. However, shipping shares declined because of the expectations that resumption in Red Sea shipping might impact the freight rates.
Gains in the Japanese markets were somewhat limited as traders hesitated to initiate active bets due to the closure of overseas markets on account of Christmas.
Since Japanese markets saw positive momentum, the shares of Japanese shippers saw an increase of ~17% on average in the previous week on the expectations of higher freight rates, because global shipping companies continued to sail around the Cape of Good Hope to dodge the Houthi attacks in the Red Sea.
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