US Inflation Up Will Give Markets the Wobbles

US consumer prices inflation figures were released tonight (UK time) with prices climbing up from 3.1% in January to 3.2% pa February 2024.

The US Labor Department that released the figures suggested that air travel, clothing and motor insurance were the key drivers behind this marginal price rise as well as more workers and less unemployed meaning there is more money around to spend although food prices remained static.

Comment

This will dampen speculation that the Federal Reserve will cut interest rates on 20^th March 2024.  Stubborn inflation may mean interest rates remain higher for longer.

• Impact on currency:  The $ will likely strengthen against the £ and the €.
• Impact on bonds:  US government borrowing costs will remain higher for now as bond yields will rise and the capital value of your global fixed interest and global index linked funds will fall.
• Impact on stock markets:  US stocks and stocks closely linked to the US trade in UK, Europe and Japan may fall although in the US we expect markets to hold as many have already priced in an inflation increase.

We still believe that inflation will likely come down further and interest rates will start to fall across the globe in the Autumn (it may be earlier but that is our forecast).  This is when stock markets and bond/gilt markets will tick upwards for growth. 

Watch out for next week with UK inflation figures due on Wednesday as well as a Federal Reserve decision on interest rates ‘same day’ as well as the Bank of England making similar decisions the very next day.