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Markets Stocks surged in a  rising tide lifts-all-boats scenario as slower-than-projected inflation galvanized bets the Federal Reserve can downshift its aggressive rate-hike path. To say markets reacted positively to the report would be an understatement, as the enraptured price action suggests investors interpreted the softer inflation print as a significant turning point, particularly in inflation, central bank hawkishness, recession risk, and investors' bearishness. All of which should pave the way for a Santa rally on the back of a better-tempered Fed to the cheers of global investors. These moves should see investors dancing in the streets. Although inflation remains at decade highs, at minimum, things are moving in the right direction,  not to mention the downside surprise is the best news we've had in some time. Notably, the anticipated Fed downshift comes at a critical juncture and should offset covid related economic concerns in China and, at minimum, provide a less hawkish bridge for the eventual reopening.  The dollar's rise over the past year has left Asian markets increasingly exposed to capital outflow, so with one fell inflation swoop, that external vulnerability has been eased and should open the door to inbound investment given the softer US dollar and an expected less hawkish… Read More »Investors are dancing in the streets celebrating the best post-CPI moves on record

It was quite a day across the financial markets on Thursday as the eagerly awaited US inflation data hit the wires at 1:30 pm GMT. Consumer prices, measured by the Consumer Prices Index (CPI), increased less than anticipated. According to the Bureau of Labour Statistics (BLS), consumer prices increased 7.7% on a year-over-year basis, following September’s 8.2% reading, representing the fourth decline since topping at 9.1% in June (its largest increase since the early 1980s). Interestingly, this is the first time since February this year that the headline year-on-year inflation print has been south of the 8.0% mark. Core annual inflation for October—excluding volatile food and energy prices—rose 6.3%, from 6.6% recorded in September. In terms of the month-over-month data, the CPI rose 0.4% in October, identical to September’s reading. Core monthly inflation, however, rose 0.3%, following September’s rise of 0.6%. The BLS highlighted the following: The energy index increased 17.6% for the 12 months ending October, and the food index increased 10.9 percent over the last year; all of these increases were smaller than for the period ending September. This suggests that the US Federal Reserve may ease rate hikes, after the central bank delivered a fourth consecutive super-sized… Read More »US inflation slows and financial markets respond, DOW and AUDUSD Eyed

What you need to take care of on Thursday, November 10: The American dollar benefited from a dismal market mood, recovering some of the ground lost but still down for the week against most major rivals. US stocks reflected the negative sentiment, with Wall Street ending the day in the red. US Treasury yields, however, were little changed ahead of the release of US inflation figures. The Consumer Price Index is expected to have risen in October by 8% YoY, below the previous 8.2% reading. Global news were mixed. On the one hand, news coming from China weighed on sentiment as the country locked down another district amid the coronavirus spread. On the other, Russia is retreating from Kherson, the only Ukrainian regional capital captured since the invasion began, as Moscow can’t keep supplying troops. Also, news indicated that Russian President Vladimir Putin would not attend the upcoming G-20 summit.  EURUSD finished the day near 1.0010, while GBPUSD is down to 1.1340. Commodity-linked currencies were also sharply down, with AUDUSD trading around 0.6420 and USDCAD up to 1.3512. Safe-haven assets gave up little ground against the greenback. USDCHF trades at 0.9860, while the USDJPY pair trades around 146.50. Gold trades… Read More »Forex Today: Looking for safety ahead of US CPI

US Mid-term exit polls do have a hint of Republican favour about them. It is very early at this stage, but could there be a growing political swing capable of creating a lasting bottom for the US stock market? Some traders and investors, are certainly buying on the basis that a Republican Congress creating policy gridlock would, in their minds, be a good thing for the economy. However, what if what is happening is a bigger historical event that we have thus far considered? Will the Mid-terms see a return toward Republican candidates that flows through to the Presidential election? If so, then the Republicans may have absolute policy control in just two years time. This could mean a lot more than just a conservative agenda. It may also see a tough talking President, but perhaps more realistic in some ways approach to the Ukraine war. With the outcome being a possible faster pathway developing toward peace than currently seems achievable. Such a policy achievement by either party would go a long way in assisting the global, and particularly Federal Reserve’s fight against inflation. Not only would energy and food prices begin to moderate, but the Fed would not to… Read More »Can mid-terms start a bull market?

Join Senior Market Strategist & Trading Mentor Duncan Cooper as he watches price levels on the EURUSD daily and 15-minute charts.

US Mid-term elections appear likely to result in the Republicans winning both Houses. This may very well be taken as a positive for equity markets over coming days. The Biden administration, while welcomed to office by financial markets, has nonetheless delivered on being a very big spending government. Since coming to office there have been several controversial moves. The sudden nature of the withdrawal from Afghanistan. The lack of real diplomacy to help prevent war in Europe. Some believe the blowing up of Germany and Russia’s gas pipeline. Domestically, it has been all about spending, as the Federal Reserve has been fighting inflation. That President Biden has continued to claim the economy is the strongest in the world, has angered voters. It is difficult to argue the extreme inflation and slowing economy are entirely the Biden administration’s fault, but voters will be very clear in their feelings on the matter just the same. To them, if you are in the Oval Office, you are responsible. The Democrats campaign has at times looked a little lost, except to suggest voting Republican is somehow un-democratic? While the Republicans have run strong campaigns on inflation and crime. A strong Republican victory is entirely… Read More »Republicans to win

As we start a new week stock markets are trapped in a narrow range. This is to be expected as this week is jam packed full of event risk. CPI reports for October will be the highlight of the economic calendar, especially US inflation that is scheduled for release on Thursday, UK Q3 GDP is also worth watching to assess how much the UK economy was impacted by September’s political and fiscal chaos. However, the markets also must navigate some choppy political waters with US Midterm elections on Tuesday 8thNovember and more uncertainty around whether China will exit its zero Covid policy.  A Republican victory and the prospect for stocks  While inflation reports come every month, we believe that the real risk for US and global assets right now is the US Midterms. There is concern from both sides of the political aisle: Republicans worry that if they don’t win power in both the House of Representatives and the Senate then government spending will surge to unsustainable levels, and Democrats worry that a Congress controlled by the Republicans will further enforce conservative social values on all states, and it could lead to more bipartisan gridlock in Washington. So, what would… Read More »The week ahead: Midterms, China and more

Whereas last week ended on the note that we may be approaching the point of peak hiking pace, this week brought a reality check. The Federal Reserve hiked rates by 75bp on Wednesday and the widely expected hike was accompanied by Powell’s hawkish message that financial conditions need to be tightened further. In contrast to any speculation around a possible Fed pivot, Powell stated clearly that 'it is very premature to be thinking about pausing' even if downside risks to growth are building. As a result, we adjusted our call to include a 50bp hike in February in addition to our earlier forecast of one more 75bp hike in December (see Research US – Fed review: Another hawkish 75bp hike – We now expect 50bp also in February, 2 November). The futures market is now pricing terminal rate at around 5.20%, 15bp higher compared to pre-meeting levels at 5.05%. The Bank of England also hiked the bank rate by 75bp to 3.0% as expected on Thursday but with a dovish tilt compared to the Fed. Hence, we expect smaller hikes going forward and foresee the peak rate in February at 3.75%. Our view is for less hikes than the market… Read More »Easing of financial conditions comes to a halt as Fed maintains a hawkish tilt

Europe Despite yesterday’s negative US finish, Asia markets bounced back strongly today on more unsubstantiated reports that the Chinese government is looking at a reopening strategy as it looks to navigate a path out of the straitjacket of its current zero-covid policy. These reports, which still haven’t been confirmed in any official capacity, have prompted a huge relief rally in equity markets, despite concerns that any reopening is unlikely to happen in the immediate future, and the very real risk that it is merely a sucker’s rally. As we head into the winter months it seems highly improbable that China would be able to reopen its economy in any meaningful or sustainable way without triggering a more widespread outbreak of Covid infections. Notwithstanding all that investors are piling in just in case, in a classic case of FOMO, fear of Missing Out. Further reports that China is also looking at relaxing restrictions around flight suspensions which penalised airlines that brought Covid cases into the country have also boosted airlines, as well as Rolls-Royce shares. In their Q3 numbers yesterday Rolls-Royce blamed lower than expected (large engine flying hours) EFH numbers of 65% on the various covid disruptions causing problems with… Read More »China reopening hopes spur big relief rally

WTI oil futures sustain bullish bias but with some caution