Investors’ eyes will be laser-focused on the US inflation report of September this week, as they struggle to find out whether the US central bank will loosen its ultra-tight policy any time this year. Any lower-than-expected CPI print will be more than welcome however, it is highly premature to say that the inflation rate will decelerate quickly, especially after the OPEC+ production cut (two million barrels per day) last week which sent the oil price higher by nearly 14%.
The US economy added 263K jobs in September while the unemployment rate dropped from 3.7% to 3.5%. The NFP report shows increases in multiple economic areas including the manufacturing sector despite the lower-than-expected ISM PMI print of September. To conclude, the lack of labour continues to pressurize the economy with a higher vacancies number than the unemployed workforce in the US. This could lead companies to increase salaries to retain workers and consequently extend the duration of high inflation rates.
Markets were hoping that any higher-than-expected unemployment read could lead the Fed to consider reducing its current rate’s hiking pace however, optimism disappeared after the NFP data released on Friday. As a result, major US indices reversed direction and gave up most of their weekly gains, meanwhile the US Dollar rallied, and the Gold retreated.
Economic data highlights
Monday 10th of October
Tuesday 11th of October
Wednesday 12th of October
- AUD- Consumer Confidence Index (OCT)
- GBP- Unemployment Rate (AUG)
- FED Harker and Mester Speech
- BOE Governor Bailey Speech
Thursday 13th of October
- GBP- GDP (AUG)
- GBP- Industrial and Manufacturing Production (AUG)
- EUR- Industrial Production (AUG)
- OPEC Monthly Report
- ECB president Lagarde’s Speech
- USD- PPI (SEP)
- FOMC Minutes
Friday 14thof September
- EUR- Inflation Rate Final (Germany-SEP)
- CHF- PPI (SEP)
- USD- Inflation Rate (SEP)
- CNH- Inflation Rate (SEP)
- USD-Retail Sales (SEP)
- USD-Michigan Consumer Sentiment (OCT)
The main risk event to watch this week will be the US CPI report. We may see the US inflation headline falling from 8.3% in August to 8.1% in September due to oil prices fall last month which was reflected in cheaper gasoline prices and lower transport costs in the US.
On the other hand, the core CPI read (ex-food and energy) may climb from 6.3% in August to 6.5% in September due to the rise in housing costs mainly. A lower-than-expected read could provide some optimism about a possible change in the US monetary policy by next year.
Markets will be waiting for the FOMC minutes of September’s meeting to get more details about the committee’s discussions. The Fed members keep a close watch on inflation and unemployment levels and have been clear over recent weeks that they were not satisfied with the current inflation levels and promised there would be further tightening. Investors would look for any hints in the minutes of a possible pivot in 2023.
The Fed still have two meetings this year in November and December. The central bank will stay focused on bringing inflation levels down to 2% hence, it’s highly likely to hike by 75 bp in November and 50 bp in December ending 2022 at 4.50%.
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