Ahead Today
G3: US Retail Sales, Europe IP
Asia: China 1-year MLF, China IP, Retail Sales, Property Investment, Indonesia Trade Balance, India Trade Balance
Market Highlights
US CPI came in lower than expected, with the headline rate printing at 0%mom while the core rate came in at 0.2%mom (vs 0.3%mom consensus). The details showed continued deflation in the goods sector, helped by lower car prices. Meanwhile, owners equivalent rent moderated further in the month, while the previous boost to hotel prices corrected. All this more than offset the rise in health insurance prices.
Overall, this was a good set of numbers, and reinforces the notion that the Fed is done for the year. Markets are now pricing in a 0% probability of a Fed rate hike in December, while also pricing in 100bps of rate cuts by the end of next year. The Dollar weakened significantly by 1.7%, with EURUSD rising by roughly the same amount to 1.087, high-beta G10 currencies outperformed, while USDJPY fell to 150.6.
Regional FX
Asian currencies strengthened against the Dollar, following the good US CPI print, with SGD (+0.7%) and KRW (+1.7%) outperforming. Markets will watch closely for China’s October monthly data such as retail sales and IP, coupled with PBOC’s 1-year MLF rate decision. Markets are expecting no change in the MLF rate, while also watching closely to see if the recent stabilization in Chinese growth continues. Meanwhile, Xi Jinping began his first visit to the US since 2017, and he is due to meet US President Joe Biden in San Franciso, and then attend the annual summit of the APEC forum. Various news reports suggest the US and China will announce deals on Fentanyl crackdown, pledge ban on AI in autonomous weapons like drones, while potentially considering resuming purchases of Boeing’s 737 Max aircraft.
