Inflation dominates, as we await core PCE release

• Eurozone inflation falls to a three-year low
• US recession fears ease
• US core PCE inflation in play today

Another positive start for European stocks, as traders continue to react of a raft of inflation metrics that have lifted hopes of a forceful period of monetary easing from the ECB. While yesterday brought substantial declines across Spain (2.2%) and Germany (1.9%), this morning brought the wider eurozone inflation gauge which feel down to a three-year low of 2.2%. With inflation on the cusp of hitting its target, the ECB are clearly in a position to act forcibly in a bid to spark an economic resurgence for the single currency region.

The US economic outlook comes back into focus today, following on from yesterday’s improved GDP metric that allayed recent fears of a potential impending recession. Coming off the back of an impressive 9.9% core durable goods orders figure, yesterday’s 3% GDP metric for the second quarter has helped eased calls for a 50-basis points cut next month. With Nvidia earnings out the way, traders will undoubtedly feel more confident as we move into a September than many expect to herald a widespread move towards monetary easing that should help boost economic growth and lift equity markets.

For today, the big focus lies on the latest US core PCE price index release, with the trajectory of the Fed’s favoured inflation metric helping to impact expectations for rates going forward. Currently standing at 2.6%, any additional disinflation that might come today would help further the case for a 50-basis point cut in September. Nonetheless, the trajectory for US inflation looks likely to remain somewhat flat for the rest of 2024, with the Fed having to cut rates despite above target price growth. For now markets can feel emboldened, but there is a risk that such expansive monetary policy could yet help rekindle inflation pressures.