Investor attention today is focused on US inflation data

October 13, 2022

The September FOMC meeting minutes showed that policymakers increased their estimate of the Fed rate trajectory needed to reach their goal. At the September meeting, voting members projected that rates would reach 4.4% in 2022 and peak at 4.6% in 2023, with a “Fed reversal” planned for the second half of 2023. But this is no surprise to the market, so the reaction from financial markets was restrained. According to FOMC spokesman Kashkari, if the US economy enters a steep decline, the Fed can always stop raising rates or slow them down, especially if there are signs of a rapid decline in inflation. So the main data of interest to investors is the US consumer inflation rate, which will be released today. A decline in inflation could give a sharp boost to stock indices as US Federal Reserve policy becomes less aggressive in upcoming meetings. Conversely, an inflation acceleration would boost the dollar index and government bond yields, leading to even more stock declines. The US Producer Price Index, which shows the rate of inflation between companies, rose another 0.4% last month, but on an annualized basis, the index fell from 8.7% to 8.5%. So there is hope for a decline in consumer inflation.

As the stock market closed Wednesday, the Dow Jones Index (US30) decreased by 0.10%, and the S&P 500 Index (US500) fell by 0.33%. The NASDAQ Technology Index (US100) was down by 0.09% yesterday.

ECB spokesman Holzmann yesterday unexpectedly spoke not about the ECB but about the US Federal Reserve, saying that the US Central Bank needs to raise interest rates by 75 bps in October and by 50 bps to return the US to an inflation-neutral stance.

The IMF on Tuesday lowered its forecast for global growth in 2023 and said policies to rein in high inflation could add risk to the global economy. Even President Joe Biden said this week that the US could face a “very slight” recession.

European stocks fall for the fifth consecutive session as investors worry about the prospect of a global economic slowdown and shrinking corporate profits due to higher interest rates. Germany’s DAX (DE30) decreased by 0.39%, France’s CAC 40 (FR40) fell by 0.25%, Spain’s IBEX 35 (ES35) lost 1.29%, Britain’s FTSE 100 (UK100) closed yesterday down by 0.86%.

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European Central Bank President Christine Lagarde said policymakers are determined to lower inflation and said cooperation with other monetary and fiscal authorities is needed for success. European Central Bank Governing Council spokesman Klaas Knot said that a “sustained effort” is needed to bring inflation under control, reiterating that at least two more “significant” interest rate hikes should follow last month’s 75-basis-point interest rate hike.

The Bank of England’s monetary policy report said: “The invasion of Ukraine has led to a sharp rise in wholesale gas prices in Europe. Household incomes are falling due to higher energy bills. Corporate profits are shrinking because of higher energy costs. General inflation has risen to unacceptably high levels. For a net energy importer like the UK, rising global energy prices are affecting national income: the cost of what the country buys from the rest of the world has risen sharply relative to the price of what it sells. Higher energy prices reduce household spending and reduce economic activity. Given where the UK economy is now, the Bank of England intends to act decisively on monetary policy at the next scheduled MPC meeting.” Thus, analysts are predicting a 0.75-1% interest rate hike.

Aluminum prices on the London Metal Exchange (LME) jumped by 7% percent Wednesday after it was reported that the US is considering a ban on Russian aluminum in response to the invasion of Ukraine. Last week, the LME presented a discussion paper on the possibility of banning Russian aluminum, nickel, and copper from trade and storage in its system.

The International Monetary Fund’s economic growth forecast showed Saudi Arabia to be the fastest-growing economy among the world’s major economies. Forecasts have been revised upward this year due to a booming oil sector combined with strong growth in the non-commodity sector. According to the preliminary budget statement, Saudi Arabia is forecasting revenue of 1.12 trillion rials ($298 billion) next year.

The oil market remains tight. Two opposing forces are now at work: the economic outlook is the main downside risk, and OPEC+ is the upside potential. The dollar index may change the parity, the dynamics of which will be determined after today’s inflation data.

The UN General Assembly adopted a resolution that does not recognize the “referendums” in the “DPR,” “LPR,” and Kherson and Zaporizhzhia regions. The resolution was supported by 143 countries and opposed by five. Russia, Belarus, Syria, the DPRK, and Nicaragua voted against it.

Asian markets were mostly trading lower yesterday. Japan’s Nikkei 225 (JP225) lost 0.02% over the day, Hong Kong’s Hang Seng (HK50) decreased by 0.78%, while Australia’s S&P/ASX 200 (AU200) gained 0.04%.

Climate change poses a serious threat to China’s long-term prosperity, which emits 27% of the world’s greenhouse gases, but the country is well positioned to meet its climate commitments and transition to a greener economy, the World Bank said.

S&P 500 (F) (US500) 3,577.03 −11.81 (−0.33%)

Dow Jones (US30) 29,210.85 −28.34 (−0.097%)

DAX (DE40) 12,172.26 −47.99 (−0.39%)

FTSE 100 (UK100) 6,826.15 −59.08 (−0.86%)

USD Index 113.28 +0.06 (+0.06%)

Important events for today:

– US FOMC member Bowman Speaks at 01:30 (GMT+3);
– US Consumer Price Index (m/m) at 15:30 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3);
– US Crude Oil Reserves (w/w) at 18:00 (GMT+3).

By JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Investor attention today is focused on US inflation data