October 11, 2024

“Yesterday’s data has left markets as uncertain as ever about the path for interest rate cuts from the Federal Reserve, with inflation hotter than expected contrasting with a surge in unemployment claims. A US PPI inflation report today and a stimulus announcement in China tomorrow are now the focus for investors.”

Tim Hallinan – Trading Director

USD

Yesterday’s data sent mixed signals about the Federal Reserve’s rate path, and the impact was net neutral for the strong dollar. On the one hand, CPI turned out to be stickier than expected, with core inflation rising from 3.2% to 3.3%, which at the margin bolsters the case for policymakers to keep a keen eye on inflation. On the other, however, unemployment claims came with a surprise uptick to a one-year high of 258K. The inflation figure still looked relatively good and it is unlikely to deter the Fed from pushing on with rate cuts just yet, with the likes of Goolsbee and Williams arguing that it was ultimately around expectations, but Bostic became the first to explicitly state that he is ‘definitely open’ to a rate pause in November. The market is still pricing that probability at around 20%. Hurricane Helene muddied the signal for jobless claims – it wasn’t quite the red flag it looks like on the surface – but there were also some clear upticks in claims across the country and not just in the affected areas, broadly adding to the labour market cooling story.

As always, PPI inflation today will give some important clues on: (i) inflationary pressures in the pipeline, and (ii) what the September core PCE print will look like (the Fed’s favourite inflation measure). The survey estimate is looking for a slight cooling in the headline from 0.3% to 0.2% month-on-month. Over the weekend, the market will be closely watching a press conference in China, where fiscal stimulus is hoped to be within the equivalent range of $200-300bn.  If delivered, China-related currencies like AUD, NZD, and to some extent EUR should receive a boost.

GBP

Sterling is heading for a second weekly loss today. This morning’s GDP figure landed at 0.2% for August as expected, which aligns with the steady growth story this year. Industrial production and manufacturing also impressed, but the data has done little to drive a sterling pick up this morning. There are no domestic catalysts in the UK today so eyes will be on the US, but there are some key pieces of wage growth and inflation data next week. They should give some signals on the likelihood that the Bank of England’s easing cycle can become ‘a bit more aggressive’ or whether sticky inflation is set to keep the MPC to a slow path downward.

EUR

The euro found some strong support at the 1.09 level amid volatility following yesterday’s mixed bundle of US data. The commitment to not giving forward guidance in the ECB meeting minutes from September looked relatively ironic when considering the multitude of recent speeches that have strongly hinted towards an October rate cut, arguing that ‘it was better to maintain full optionality for the period ahead to be free to respond to all of the incoming data’. That must be why we have had a barrage of heavy signalling from policymakers over the past few weeks. The eurozone calendar is quiet today, but EUR/USD is likely to get plenty of impetus from the US data this afternoon.

Markets

US and European equities suffered some modest losses yesterday after the combination of a slightly hawkish CPI report and a weaker jobless claims figure out of the US. In China, the CSI300 ended this morning’s session with another 2.5% fall amid worries that the Ministry of Finance may not deliver the 2-3trn yuan stimulus package that investors are hoping for tomorrow.

Main Economic Events (All Times CET)

8:00am: UK GDP m/m
2:30pm: US PPI Inflation
2:30pm: Canadian Employment Change
4:00pm: US UoM Consumer Sentiment

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