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Summary United States: Inflation Is the Name of the Game Thursday's highly anticipated Consumer Price Index report surprised to the upside. Headline CPI rose 0.4% in September, and core CPI increased 0.6%. Even with some easing on a year-ago basis, the details of the report suggest inflation still has plenty of momentum and remains broad-based. Next week: Industrial Production (Tue.), Existing Home Sales (Thu.), Leading Index (Thu.) International: Increasing Signs of an Impending U.K. Slowdown This week's U.K. data offered increasing evidence of a slowing economy. August GDP unexpectedly fell 0.3% month-over-month and services activity dipped 0.1%, while industrial output dropped 1.8%. With GDP likely to also fall further in September, the U.K. economy is on course to contract for Q3 as a whole. The GDP data was not the only sign of softness, as labor market figures showed a decline in employment for the June-August period. Next week: China GDP (Tue.), U.K. CPI (Wed.), Canada CPI (Wed.) Interest Rate Watch: CPI Keeps Pressure on FOMC to Be Aggressive If there were any question that the FOMC would not raise its target range for the fed funds rate by 75 bps at its next meeting on Nov. 2, those doubts… Read More »Weekly economic and financial commentary

US house prices fell for the first time in more than 10 years in July – we expect the market will slow further with declines in both existing home sales and house starts. For the UK, we see headline and core inflation rates edging higher. However, we believe we are now very close to the peak, given government's decision to cap household energy bills. US: Housing market showing weakness The latest job and inflation readings have cemented expectations of a 75bp hike from the Federal Reserve on 2 November and heightened the chances of a fifth consecutive 75bp hike in December. However, we still favour the Fed slowing the pace of hikes to 50bp on 14 December given the intensifying economic headwinds that should allow inflation to fall quickly through 2023. The housing market is going to be a key factor in this. House prices fell for the first time in more than 10 years in July as the surge in mortgage rates prompted a collapse in housing demand. Things have got much worse since then with mortgage applications for home purchases at the lowest level since the housing bear market of 2010-13. With more supply coming on the market, the challenge to sell… Read More »Key events in developed markets next week

China Q3 GDP – 18/10 – the various lockdowns that were implemented across China during Q2 had a chilling effect on the Chinese economy, contracting by -2.6%, on a quarterly basis. This was much more than expected, dragging the annualised rate down to 0.4%, from 4.8% in Q1. Consequently, any lingering hope that the Chinese economy might grow by the 5.5% targeted by the Chinese government this year went up in smoke. A lot of the economic data has improved on a month-on-month basis since then as a lot of the more onerous restrictions got relaxed, however the insistence of the Chinese government to continue with their current zero-covid policy has meant that the recovery in Q3 has been very stop start. On retail sales we have seen a solid rebound with a solid 5.4% performance in August, the best performance in 12 months, although most of that is likely to have been the release of pent-up demand after several months of weak growth. With industrial production also looking solid we should see a decent expansion in Q3, with expectations of a 3.5% rebound.   UK CPI (Sep) – 19/10 – UK inflation got a bit of a respite in… Read More »The Week Ahead: UK CPI, retail sales, China Q3 GDP, Deliveroo, ASOS, Tesla and Netflix earnings

Inflation will dominate the market theme again in the coming week as, after the United States, it will be the turn of others to face their inflation demons. With the risk of recession growing by the day but not a lot changing with the inflation dynamics, UK CPI figures will attract the most attention, while a modest pickup in Japan is unlikely to spur any policy shifts at the Bank of Japan. China will also come under the spotlight as it releases GDP estimates for the third quarter and its leaders convene for the National Congress of the Communist Party.

The much hotter-than-expected CPI does not offer much in the way of pleasant news for equity markets, with 10-year Treasury yields topping 4 %. The second-round effects of inflation are clearly being felt across the economy. While the Fed remains on autopilot for a 75bp hike in November, investors will need to think more seriously about 75bp in December. If The FOMC minutes indicated a data-dependent Fed that requires a high hurdle to pause its rate-hiking cycle, that hurdle got immeasurably higher. The strong CPI only reinforces the view that there is no way the Federal Reserve can contemplate a 'pivot' this year. For the dollar, USD long fatigue was starting to emerge, but the USD higher is still the path of least resistance. Synchronized global growth is the best USD-lower environment, but that is nowhere to be seen. Other catalysts, such as China ending zero-covid or easing European energy fears, also look well beyond the horizon, as is the Fed. pivot. The topside CPI beat adds further persuasion to short the Yen. How quickly USDJPY can get to the Y150 will be partly determined by a materializing bond market engagement to see if the US 10y yield can finally… Read More »Hot CPI means the Fed pivot is well beyond the horizon

The Retail Sales Control Group is foreseen at 0.3% in September after the previous miss. Core Retail Sales are set to drop by 0.1%, as high inflation digs a hole in consumers’ pockets. Only upside surprises in the headline and Core figures could revive the US dollar uptrend. Amidst the continued drop in gasoline prices, easing inflation expectations and improvement in American consumers’ confidence, yet another rise in US Retail Sales may not come as a surprise for the month of September. The more precise gauge, the Control Group is expected to show an increase, which could have a significant impact on the US dollar trades. The US Census Bureau will publish the data on October 14 at 12:30 GMT. The US consumer spending, as represented by Retail Sales, is expected to rise by 0.2% MoM in September after recording an unexpected increase of 0.3% in August. The July Retail Volume was revised lower to a 0.4% decline. Meanwhile, the Retail Sales Control Group (ex-food services, autos, gas, building materials) for September is seen higher at 0.3% versus August’s 0%. The core Retail Sales (ex-Autos) are likely to decline by 0.1% MoM in the reported month vs. -0.3% reported previously.… Read More »US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Equities fall sharply on Friday as the jobs market remains strong. Equities still closed higher on a volatile week, while Monday, Tuesday saw massive gains. Oil prices spike as OPEC+ cuts supply, all eyes now on CPI data. Another week of huge volatility for financial markets was met with a certain resignation on Friday. Early indications for the week were positive with a massive two-day rally to set things off as the Fed pivot talk once again took centre stage. This saw a massive 6%-plus, two-day rally for most of the main indices before some flatlining ahead of Friday's jobs report. The hope was for a weak number to continue the Fed pivot hopes. However, what we got instead were more signs of a strong labour market that will need to take a few more interest rate hits before it falls to the canvass. The unemployment rate dipped to 3.5%, while the payrolls number showed gains of 263K, just below the 270K consensus. This reinforced the hawkish comments from Fed officials, which markets had ignored earlier in the week. Bond yields once again spiked with the 2-year closing at a yield of 4.3% and the 10-year just shy of 3.9%. Fed funds futures… Read More »Week Ahead on Wall Street (SPY) (QQQ): Earnings season begins and CPI data the highlight

US BLS will release the September CPI figures on October 13. Markets expect core inflation to rise 0.5% on a monthly basis in September. Markets are pricing in an 80% probability of a 75 basis points Fed rate hike next month. The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) figures for September on Thursday, October 13. Although the Fed uses the Personal Consumption Expenditures (PCE) Price Index data as its preferred gauge of inflation, market participants are likely to react more significantly to the CPI data simply because it's published two weeks before the PCE. Additionally, the CPI is widely seen as a better measure of what consumers observe with regard to changes in prices. Investors expect the headline annual CPI to decline to 8.1% from 8.3% in August. The Core CPI, which excludes volatile food and energy prices, is seen edging higher to 6.5% from 6.3% in the same period. On a monthly basis, the CPI and the Core CPI are expected to arrive at 0.5% and 0.2%, respectively. Since the monthly figures are not distorted by the base effects, they are likely to paint a more accurate picture of core inflation. Previous Core CPI… Read More »US September CPI Preview: Monthly core inflation is the figure to watch

Stock investors are a bit on edge ahead of upcoming critical inflation data and the start of Q3 earnings season. Fed pivot Bulls are hoping the Producer Price Index on Wednesday and Consumer Price Index on Thursday will confirm their belief that inflation has “peaked” which in turn could spark another rally as investors return to bet on the Fed backing off its tightening program. A so-called “Fed pivot” has been anticipated and rallied upon multiple times this year already, only to be dashed by continued strong inflationary data and tough talk from Fed officials. Economists say that interest rate hikes can take 6 months or more to filter through the economy and impact inflation, so the worry remains that the Fed goes too far, too fast and ends up “breaking” something. Warnings about a potential recession continue to circulate with JPMorgan CEO Jamie Dimon the latest to forecast a recession in 2023 that could be compounded by the Fed's aggressive rate hikes and Russia's war in Ukraine. Of course Russia's war has roiled energy, grain, and other commodity markets, which in turn have kept upward pressure on inflation. Food supplies Keep in mind, global food supplies have even bigger… Read More »Markets are flat ahead of inflation data

US stocks tanked at the end of last week, after the stronger than expected US NFP report for September reinforced the Federal Reserve’s hike-and-hold path for interest rates, which are pushing up recession risks for the US and the global economy. The Conference Board now predicts a 96% chance of a recession in the US within the next 12 months.  While US GDP has already registered a technical recession, The Conference Board’s measure is more accurate. Right now, it predicts that the US economy will experience a recession in Q4 2022 and Q1 2023. The question now is, when will the US economy climb out of recession? We will be watching the The Conference Board recession probability model closely, as it is also good at predicting the end of recessions when it falls rapidly, usually one or two months before the economy starts to pick up. Thus, watch chart 1 closely in the coming months to determine the turning point for the US economy. Economic and corporate data this week will be important in helping us to figure out just how bad this recession will be. US CPI on Tuesday and the start of Q3 earnings season in the US are… Read More »Earnings season and US CPI keep markets on edge