Global Markets Brace for US Inflation Data with Rising Oil Prices and Economic Indicators

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Asian markets declined following a shaky performance on Wall Street as investors awaited crucial US inflation data, all while concerns grew over rising oil prices and their impact on ongoing inflationary pressures, complicating the outlook for interest rates.

In Japan, the corporate goods price index for August saw a 3.2% year-on-year increase, slightly lower than the revised figure of 3.4% in July. This index reflects the prices charged by Japanese companies when trading with each other. Moreover, corporate sentiment in Japan took a hit in September, with both large manufacturers and non-manufacturers showing diminished optimism.

Meanwhile, the UK experienced a 0.5% drop in gross domestic product in July, falling below the 0.2% contraction predicted by economists in a Reuters poll. The Office for National Statistics attributed this decline primarily to a 0.5% drop in services output. However, the economy outperformed expectations for the second quarter, with the ONS confirming 0.2% growth.

Market sentiment is shifting towards expectations of a quarter-point interest rate hike by the European Central Bank (ECB) due to ongoing concerns about high inflation in the region. Money markets now indicate a 70% probability of a rate increase, up significantly from just 20% earlier in the month. This change in outlook is driven by reports suggesting that the ECB's forthcoming economic forecasts will project inflation exceeding 3% in 2024, reinforcing the case for further tightening.
Economists are estimating a 3.6% year-over-year increase in US inflation, according to Dow Jones. This would represent an uptick from the previous month's reading of 3.2%. Additionally, the core consumer price index, which excludes food and energy costs, is expected to show a 4.3% rise in August, down slightly from the 4.7% gain observed in July.
 
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