All eyes and ears were on the U.S. CPI release… which didn’t really cause much of a ruckus in the markets.
Crude oil, however, caught a massive 3% win for the day. Read on to find out why!
Headlines:
- Japan’s producer prices rose from 2.6% to 2.8% year-on-year in September instead of dipping to the projected 2.3% figure
- Japan’s top currency diplomat Kanda noted that markets remain “extremely sensitive” to economic developments and the monetary policy outlook in major economies
- People’s Bank of China talked of more stimulus, as it said it would set up the 500B-yuan Securities, Funds and Insurance companies Swap Facility (SFISF) to help firms pledge assets in return for liquidity
- BOJ Deputy Governor Ryozo Himino says BOJ is not on a pre-set course, favors raising interest rates if the board has “greater confidence” that its forecasts will be realized
- Australia’s MI inflation expectations for the next 12 months starting September slowed from 4.4% to 4.0%
- German retail sales rose 1.6% month-on-month in August, following earlier 1.5% increase
- Israeli Defense Minister Gallant said their response to Iran’s missile attack “will be deadly, precise and above all surprising” while Iran said it’s ready to launch thousands of missiles at Israel if needed
- ECB monetary policy meeting accounts hinted at another 0.25% cut in October, as ECB member Schnabel reiterating “We cannot ignore the headwinds to growth. With signs of softening labour demand and further progress in disinflation…”
- SNB Vice Chairman Antoine Martin cites low inflation and promising economic growth as reasons for favoring lower interest rates
- U.K.’s finance minister Rachel Reeves is considering raising capital gains tax to as high as 39%, as reported by The Guardian
- Hurricane Milton knocked out power to over 3.4 million homes and businesses in the U.S., while almost a quarter of fuel stations across the state ran out of gasoline
- U.S. September CPI report showed 0.2% m/m uptick in headline inflation (0.1% forecast, 0.2% previous) and a 0.3% m/m increase in core inflation (0.2% forecast, 0.3% previous), bringing the headline CPI down from 2.5% to 2.4% y/y (2.3% forecast)
- U.S. initial jobless claims at 258K (231K forecast, 225K previous) for the week ending Oct. 3
- Chicago Fed President Austan Goolsbee noted the “vast majority” of Fed policymakers expect rates will “gradually come down a fair amount to something well below where they are today”
- Atlanta Fed President Raphael Bostic said he is “definitely open to” skipping a rate cut in November
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Markets were cruising carefully for the most part of the Asian and London trading sessions, as traders had been bracing for Uncle Sam’s inflation report due later in the day.
Only crude oil was enjoying notable gains, with investors keeping close tabs on the geopolitical conflict in the Middle East. As it turned out, Israel warned of a “deadly, precise and above all surprising” retaliation on Iran and ordered an evacuation in Lebanon, keeping traders on edge about major disruptions to oil production in the region.
It didn’t help that Hurricane Milton in the U.S. spurred widespread power outages and led nearly a quarter of fuel stations in Florida to run out of gasoline, adding to supply concerns.
Meanwhile, U.S. Treasury yields started cruising higher leading up to the release of the U.S. CPI report, which was then followed by a dip as traders also caught wind of a weaker than expected initial jobless claims figure.
U.S. equities also turned slightly lower as the chances of another 0.50% Fed rate cut became slimmer after inflation data surprised to the upside.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar had a mostly quiet start against its counterparts, with the exception of the Kiwi and Aussie which edged higher towards the latter part of the Asian trading session thanks to talks of more stimulus from China.
Volatility picked up during London market hours, as the Greenback acted as a counter currency to euro weakness from a relatively dovish ECB meeting minutes and a Loonie selloff. Sterling started to find itself on wobbly ground while traders appeared to account for political uncertainty in the U.K. and rising odds of another BOE cut.
USD/JPY and USD/CHF were already on weaker footing leading up to the U.S. CPI and initial jobless claims release, which then extended these pairs’ declines before sideways price action ensued. Mixed rhetoric from Fed officials also seemed to contribute to net dollar weakness towards the end of the New York session.
Upcoming Potential Catalysts on the Economic Calendar:
- U.K. GDP at 6:00 am GMT
- U.K. goods trade balance and industrial production at 6:00 am GMT
- Canada’s employment report at 12:30 pm GMT
- U.S. PPI report at 12:30 pm GMT
- FOMC member Goolsbee’s speech at 1:45 pm GMT
- U.S. UoM revised consumer sentiment index at 2:00 pm GMT
- FOMC member Logan’s speech at 2:45 pm GMT
- FOMC member Bowman’s speech at 5:10 pm GMT
The U.S. will continue to catch the market’s attention, this time with the September inflation data and a couple more FOMC member speeches. Don’t sleep on the weekly jobless claims and scheduled speeches by the FOMC members, though, as they could also influence expectations for the Fed’s next interest rate cuts.
Keep your eyes glued to the tube especially if you’re trading the U.S. dollar in the next trading sessions!
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