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This Week: US CPI set to confirm jumbo-sized Fed rate hike

It may be wise to fasten your seatbelts because the next few days promise to be eventful for financial markets. Investors will be served a platter of key economic reports and speeches from numerous financial heavyweights. To top things up, all eyes will be on the latest US inflation which is arguably now the biggest data point on the risk calendar.

Before we take a deep dive into what to expect from the highly anticipated US CPI for September, here are the scheduled economic data releases/events in the coming week:

Monday, October 10

  • USD: Speeches by Fed Vice Chair Lael Brainard and Chicago Fed President Charles Evans
  • EUR: Speeches by ECB Chief Economist Philip Lane and Banco de Portugal Governor Mario Centeno

 

Tuesday, October 11

  • JPY: Japan August trade balance and current account
  • AUD: Australia September household spending and business confidence, October consumer confidence
  • IMF publishes World Economic Outlook
  • EUR: ECB Chief Economist Philip Lane speech
  • GBP: BOE Governor Andrew Bailey speech, UK August 3-month unemployment rate, September jobless claims
  • USD: Cleveland Fed President Loretta Mester speech
  • Meta Platform’s virtual conference

 

Wednesday, October 12

  • EUR: ECB President Christine Lagarde speech, Eurozone August industrial production
  • GBP: UK August monthly GDP, industrial production, trade balance
  • GBP: Speeches by BOE’s Jonathan Haskel, Catherine Mann, and Huw Pill
  • Brent: OPEC publishes Monthly Oil Market Report
  • USD: US September PPI, FOMC minutes, speeches by Fed Governor Michelle Bowman, Minneapolis Fed President Neel Kashkari

 

Thursday, October 13

  • JPY: Japan September PPI
  • AUD: Australia October consumer inflation expectations
  • EUR: Germany September CPI (final)
  • Brent: IEA publishes Oil Market Report
  • US crude: EIA weekly oil inventory report
  • USD: US September CPI, US weekly initial jobless claims

 

Friday, October 14

  • NZD: New Zealand September manufacturing PMI
  • CNH: China September CPI, PPI, external trade
  • GBP: BOE due to end its emergency bond buying
  • USD: US September retail sales, October consumer sentiment
  • CAD: Canada August manufacturing sales, September existing home sales
  • S&P 500: US earnings season begins with Wall Street banks (JPMorgan, Wells Fargo, Citigroup, Morgan Stanley)

 

Thursday’s release of US consumer price inflation for September assumes huge importance for markets as it will be a key driver for Fed policy and the direction of bond yields and the US dollar. The hawkish US jobs report from Friday all but confirmed another 75bp November Fed rate hike but sticky, elevated CPI will increase speculation that rates will be held higher for longer next year, not a good mix for risk assets.

Consensus sees a 0.3% m/m increase in prices, which would push the annual core rate up to 6.5% from the shock 6.3% in August. We can’t forget the last CPI reports where it was hoped that prices were trending lower when this rate was at 5.9% in June and July. The headline print is expected to drop two tenths to 8.1% from 8.3%. Housing costs are the main driver of higher prices and these take time to reflect in changes. Only a possible seven handle in the headline reading will slow the pace of policy tightening and the ascent of the dollar.

DXY weekly

We also get minutes from the September FOMC meeting as well as numerous speeches form Fed officials. This meeting had an updated, relatively hawkish new set of dot plots, though Chair Powell’s press conference was slightly underwhelming in comparison. Markets will be on the lookout for any suggestions the Fed might pause its rate hike path if it triggered unnecessary market risks. That said, officials have definitely been singing from the same hymn sheet recently, indicating that rate rises will continue for some time due to stubborn and unacceptably high inflation.

Bank of England intervention to stem a bond market meltdown and a government U-turn on part of its unfunded tax-cutting plan have brought some calm to UK markets. The coming days will put the recovery in GBP to the test with jobs figures and August GDP.  Weak data could pile the pressure on the currency even though markets price in a 100-basis point November rate hike. We note that the emergency BoE bond purchases expire on Friday, October 14 which could reveal just how much market nerves have been soothed.

GBPUSD D1

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