Consumer prices handily beat expectations again but to the downside in October, with headline CPI advancing a still strong 0.4% m/m. Similarly, the core index fell significantly below consensus expectations (TD: 0.4%, consensus: 0.5%), rising at a still above-trend 0.3% m/m pace, with slowing reflecting more modest, but still elevated rents and OER inflation, coupled with a nice retreat in core goods prices.
CPI
In our view, the October CPI report should cement expectations for a 50bp rate increase at the December FOMC meeting, in line with our forecast. At this stage, there is no longer a need to front-load tightening and the Fed now has room to shift to a steadier hiking pace going forward.
RATEHIKES
Rates: Treasury yields fell sharply and the curve steepened as the market priced in a less hawkish Fed. We think that the market may be getting a little ahead of itself as the Fed will need more reports to confirm that inflation is slowing before it can signal a pause. We remain long 10y Treasuries and in SFRH3-H5 flatteners.
FX: One print does not make a trend, but it sure does help. Given where we are in the tightening cycle, it is natural for the market to think about the end-point is near. That introduces an asymmetry in the USD around data/Fed. We have noted a USD correlation switch to easing priced into the curve. Positioning ahead of this meeting showed a notable reduction in USD longs across several pairs. This will likely extend in the yen. USDJPY has put in good work to form a top and downside pressure is likely persist as yen has been oversold on crosses. We like CADJPY downside.
USD
The Fed’s nowcasting model is still printing above 0.4 per month:
INFLATION
Two very different scenarios present themselves. Either sticky inflation combined with this sudden easing in the FCI will keep the Fed on track for more (less steep) tightening and this is another, larger, bear market bounce for everything.
Or, US inflation will keep falling and a US soft landing becomes a distinct possibility meaning DXY has topped and AUD bottomed.
I am still leaning toward the former as the base case but today is the first time in a long while that I can see a not unreasonable path to the latter.
GDP data suggest the economy remains very strong
However, there are signs that inflation may not go away easily
This may call for more action by the Fed
The latest quarterly GDP...
Wall Street was able to follow through on its recent surge on the back of strong GDP data with European shares also lifting as Euro stopped climbing higher. The USD remains under...
Before we move into a review of the last few months of market action to learn what most investors did wrong, I think it is important to begin this missive by reposting something...
Australian dollar booms on weaker US inflation
Add a Comment
Comment Guidelines
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrichthe conversation
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically.
Use standard writing style. Include punctuation and upper and lower cases.
NOTE: Spam and/or promotional messages and links within a comment will be removed
Avoid profanity, slander or personal attacks directed at an author or another user.
Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Add a Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.