Despite the still-cautious tone from central bankers about the end of the tightening cycle, necessary to maintain an ounce of credibility to keep inflation expectations anchored, investors are no longer wrong and considering rate hikes as of old. Macroeconomic data released last week confirms the continued movement of disinflation and outlines an ideal “soft landing” scenario.(1) “. Austan Goolsbee, president of the Chicago Fed, even talks about an “unusual feat” for the US economy with a record decline in inflation (excluding wartime) without a recession. There is no doubt that the theme of “growth” will become a central theme in the coming quarters and take precedence over the theme of “inflation.” “Soft landing”? And that’s a favorable “Goldilocks” scenario(2) » that can be implemented, the “ideal path” hoped for by Jerome Powell. Last week he could also give us an overview of this on the financial markets with a solid development of stock indices. However, in the event of a more significant recession, which is not currently a central scenario, the situation in the risk markets would be different, even in the event of a central bank rate cut.
As already mentioned, the decline in inflation is now in full swing and this was confirmed once again by the US inflation data for October, which was below consensus expectations. Driven by the drop in energy prices, overall inflation (caption) stagnated during the month, which, through the influence of the comparative base, makes it possible to reach annual inflation at 3.2% compared to 3.7% in September. Inflation brought a good surprise core which now stands at 4% annualized compared to 4.1% in the previous month. Tensions are now focused on a few inflationary areas, especially rents, while the increase in non-rent services prices has rather calmed down. These elements were also confirmed by the drop in producer prices in October. Here too, and like the vast majority of recent US macroeconomic indicators, the publications turned out to be below expectations. The fall in inflation is supporting an increase in the purchasing power of US households, with real wages up 0.8% over the year. This is partly reflected in US consumption, the pillar of growth, with retail sales holding up relatively well over the course of the month. If the numbers are not spectacular and confirm a certain caution among Americans, their resilience confirms the soft landing of the US economy.
Even our good old Eurozone, with its depressed economy, was also entitled to good news. Investors’ economic outlook improved significantly during the month, especially in Germany, although the perception of the current situation remains negative. Finally, good news never comes alone, Moody’s(3) affirmed Italy’s rating by removing the negative outlook (which is a good surprise), while there were fears of a downgrade for High Yield.