Yesterday, the much-anticipated US Consumer Price Index (CPI) for October was released. The year-on-year growth came in at +3.2%, slightly below expectations by just 0.1%. However, the market reacted strongly with a sharp drop in US bond yields and a strengthening of the dollar selling trend. The stock market surged. While the slower growth was expected from the forecast stage, it seems that the market remained cautious until it saw the actual numbers. This has significantly increased the feeling that the US interest rate hike may be put on hold for the rest of the year.
Today, there are a series of US economic indicators scheduled for release, although they may not attract as much attention as yesterday’s CPI. These include the MBA Mortgage Applications (11/04 – 11/10), Retail Sales for October, Producer Price Index for October, New York Fed Manufacturing Index for November, and Business Inventories for September, among others.
Retail Sales are expected to decline by -0.3% compared to the previous month, indicating a decrease from the previous +0.7%. The Producer Price Index is expected to show a year-on-year growth of +1.9%, indicating a slowdown from the previous +2.2%. However, the Core Year-on-Year is expected to be +2.8%, slightly higher than the previous +2.7%. If these key indicators produce results in line with yesterday’s trend, it is likely that the sentiment of a halt in rate hikes for the rest of the year will be further strengthened. This should bring some relief to the stock market as well. The foreign exchange market is likely to form a dollar selling trend.
However, it’s worth paying attention to the presence of the USD/JPY exchange rate in this dollar selling trend. If expectations of an early rate cut in the US continue to spread in the market, the USD/JPY rate may also turn downward. However, US monetary authorities may push back against the excessive expectations of a rate cut in the market, as inflation targets have not been met yet. Today, there are scheduled speeches from US monetary authorities such as the Vice Chairman of the Federal Reserve, and the President of the Richmond Federal Reserve. The yen selling pressure from investors based on the interest rate differential between Japan and the US remains strong. Additionally, the rally in the stock market could provide tailwinds, possibly leading to further weakening of the dollar against cross currencies, including the euro and Australian dollar. Whether the USD/JPY rate can overcome these pressures and establish a downward trend will be key to the overall trend of the dollar.
In London’s market later on, there are also several events to watch out for. Among them, UK inflation statistics are highly anticipated. At 4:00 PM Japan time, October UK Consumer Price Index, Retail Price Index, and Producer Price Index will be released. Of particular note is the Consumer Price Index year-on-year. The market consensus is +4.7%, indicating a rapid slowdown from the previous +6.7%. While it’s already priced in that this figure may fall below 5%, as indicated by the Chief Economist of the Bank of England, similar to the US CPI released yesterday, the market reaction may become significant after the actual results are known. So, it’s something to watch out for.
Today, there will be significant US indicators, including US Retail Sales and Producer Prices. The market sentiment is currently chilly, and depending on the results, the trend could change again, so it’s crucial to be cautious. The plan is to consider positions after the numbers are released.