The main event for this week was the US CPI print on Thursday. Short Term Interest Markets are now pricing in over a 10% chance of a 100bps hike from the Fed at its next rate meeting. This should continue to pressure stocks, support the USD, and weigh on gold and silver in the near term and at the very least, cap gains. The GBP was a constant source of volatility this week as it got caught between the Bank of England’s gilt purchase headlines and rumours that the UK’s PM is about to conduct a fiscal policy U-turn. Traders should be aware that market dynamics are very finely balanced and will be extremely sensitive to incoming US inflation data.
Other key events from the past week
- GBP drama: Bailey’s bounce, Oct 11: Bank of England’s Governor Bailey ratted gilt and GBP markets again this week as he raised an ultimatum that the BoE would stop gilt purchases on Friday this week. See here for more detail.
- Hot US Inflation: US CPI hit, Oct 04: US CPI came in hotter than expected on Friday with the headline print of 8.2% y/y which was higher than the 8.1% expected. The core reading was 6.6% which was higher than the 6.5% forecast and this keeps pressure on the Fed to keep hiking rates into next year.
- USD: Fed Speak, Oct 10-11: Fed’s Mester kept to her hawkish script today saying the Fed needs to do more and inflation has not slowed. How will Fed speak develop after this week’s latest inflation data?
Key events for the coming week
- China: GDP Growth, Oct 18: Next week traders will be looking closely at China’s Q3 GDP y/y growth rate which is expected to rise to 3.1% from the prior reading of 0.4%. A surprise rise could help lift China’s struggling 50 index.
- Strong seasonals approach for the S&P500: The S&P500 enters a strong seasonal period until year-end.
- CAD: Inflation Rate, Oct 19: Governor Macklem has recently been talking about the BoC needing higher rates and this helped lift expectations for a 50bps rate hike. A firm CPI print on Wednesday next week would add to that narrative.