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November 29, 2022

Signs that inflation is peaking pushes markets up

Macro commentary by eToro analyst for Romania, Bogdan Maioreanu

Inflation fears are starting to calm, giving investors fresh hope that central banks will pause their interest rates hikes. Stock exchanges have reacted positively last week to the latest US inflation numbers showing a decrease, with the renewed optimism bringing buyers back into the market.

European central bankers expect eurozone inflation to peak soon as well. The European Central Bank expects inflation to reach 8.1% this year and has raised rates three times this year, with its key rate now at 1.5%.

In Romania inflation (CPI) rose 1.28% in October, but the annual inflation slowed to 15.32% from 15.88% the month before. The rise in prices was mainly due to food that increased 2.29% from September while non-food and services showed only marginal increases below 1%. The largest increase in prices was in sugar that rose 11.85% followed by potatoes close to 8% and eggs with over 6.6%. While being the former champion of price increases, vegetable oil got slightly cheaper with 0.03%.

The average gross salaries in September were 6457 RON with 109 RON or 1.7% higher than in the month before. The net average salary was 4003 RON and also increased by 1.8%.  On a yearly basis the increase in salaries in Romania was 13.8%, only 2% below the inflation rate.

At global level, inflation is the main cause for concern for 42% of the respondents of an Ipsos survey. The same worry we can see in the eToro Retail Investor Beat survey, where 23% of the investors questioned are worried about the evolution of this indicator. In the US, inflation is also the main cause of concern for the investors. Therefore there was no surprise that the markets went up after the latest inflation data that came better than expected.

The annual inflation rate in the US slowed for a fourth month to 7.7% in October of 2022, the lowest since January, and below market forecasts of 8%, and much lower than the 8.2% posted in September. Compared to the previous month, the CPI rose 0.4%, the same as in September and below expectations of a higher 0.6% rate. All this inflation data was combined with an increase in the number of unemployment claims of 225k larger than the forecasted 220k.

The market reacted immediately offering the investors the largest upward move in S&P 500 on CPI data since 1949. But the star of the show was Nasdaq, which rose 7% in Thursday’s session but is still down close to 30% from the peak of last year. The reasoning behind the move was a hope that the Fed might pivot seeing that the data is starting to agree with their stance of fighting inflation.

However, the joy was dampened by the University of Michigan inflation forecast, which came worse than  expected with the 1-year inflation rising to 5.1% and the 5-year inflation rising to 3%. The Consumer confidence index also deteriorated but the markets held on to Thursday’s gains and managed to close in the green, with Nasdaq up another 1.88%, ending a wild week. Markets are still in the same bullish behavior in a bear market but a sustained rally is still unlikely until inflation is down significantly.


Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.

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