The FP Markets Research Team produces First Light News during the early hours of the European session, a daily Market Briefing that helps ensure traders and investors are up to date in the macro space for the day ahead.
Good morning.
Softer US Inflation
Tuesday was all about US inflation.
Softer-than-expected inflation offered a promising view for the month of October. Year on year, US consumer price inflation cooled more than expected at 3.2% in the twelve months to October, comfortably south of the 3.7% print in September (and below the market’s median estimate of 3.3%). For the same period, the core measure—excludes energy and food components—also eased to 4.0%, below 4.1% in September (consensus: 4.1%). This marks the smallest 12-month change since late 2021. From September to October, inflation came in flat (0.0%) against the 0.4% reading in September (estimate: 0.1%), while core inflation slowed to 0.2% on a month-on-month basis, down from 0.3% (estimate: 0.3%). According to the US Bureau of Labor Statistics (BLS), gasoline prices were lower, down -5.3% in October compared to the year prior and lower from September to October.
The release will likely be welcomed news at the Fed. However, note that we have one more CPI release (for November) to contend with on 12 December (a day ahead of the FOMC meeting) and one NFP release on the radar on 8 December. Markets have almost fully priced out the probability of a rate hike materialising at December’s meeting, and it would take a sizable upturn in the aforementioned CPI and NFP releases to change that. Regarding rate cuts, there’s around 35bps priced in for a cut as soon as March, with a total of 100bps of cuts priced in for 2024 (an increase from 75bps).
In the immediate aftermath of the US CPI release, US equity index futures and Government bonds rallied, together with the Dollar Index staging a one-sided decline.
UK CPI Inflation
Earlier this morning, markets welcomed CPI inflation data from the UK. As anticipated, with lower energy prices, UK inflation cooled considerably at the headline level. Year-on-year inflation for October eased to 4.6% versus expectations of 4.7% (down from 6.7% in September) and marks its lowest inflation rate in two years. At the core level for the same period, which excludes energy, alcohol and tobacco, inflation slowed to 5.7% in October, down from 6.1% in September (consensus: 5.8%).
Overall, this is an optimistic picture for UK consumer prices, which the Bank of England (BoE) and Prime Minister Rishi Sunak, of course, will welcome (the Prime Minister has now achieved his pledge to halve inflation by the year-end). Of particular interest to the BoE will be services inflation, which slowed to 6.6% in October compared with the same month a year ago, down from 6.9% in September and south of the BoE’s 6.9% forecast. However, yesterday’s wage data suggests the UK economy is not out of the woods yet, though it appears to be heading in the right direction. Against the US dollar, sterling dipped about -0.10% following the release, though has been relatively rangebound since.
Interesting Charts
BTC/USD has continued to press lower since connecting with daily resistance between $38,523 and $37,624. Aiding recent downside is the negative divergence from the Relative Strength Index (RSI), which has also recently exited overbought space.
Having seen room to explore lower terrain until daily support at $34,048, sellers could remain in control.
BTC/USD Daily Chart:
The Day Ahead
Before the US cash open, tier-1 data will be released from the US at 1:30 pm GMT. These include PPI inflation, retail sales and the Empire State Manufacturing Index.
G10 FX space as of 08:35 am GMT:
Thanks for reading. Have a great day.
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