Tensions Ease as PCE Data Indicates Subsiding Inflation

In a dramatic turn of events, the feared U.S. government shutdown was averted, and PCE data signalled easing inflation, but the financial markets remain wary amidst mixed economic indicators globally.

Key Factors for Today

• PCE Data Reveals Easing Inflation: The US core PCE for August falls to 3.9%, marking a significant change in the ongoing inflation narrative.
• No US Government Shutdown: Lawmakers pass legislation to extend funding through mid-November, averting a shutdown.
• Eurozone Recession Concerns: Despite falling inflation, worries of a recession and an ECB hike persist.
• Oil Prices Decline: WTI is down over 1% amidst production concerns and geopolitical tensions.

Market Movers

• Gold on the Slide: Despite the falling PCE, gold slides for the 5th straight session, driven by increased risk appetite after the averted government shutdown.
• Eurozone Economy Wobbles: With inflation falling below expectations and German retail sales contracting, the euro faces headwinds.
• WTI Prices Under Pressure: A combination of increased production, China’s economic uncertainty, and geopolitical issues push prices lower.

The Big News

The financial markets breathed a collective sigh of relief as the U.S. lawmakers made a timely intervention, passing legislation that effectively extended government funding through November 17, thereby dodging a potentially catastrophic shutdown. While this political manoeuvre has temporarily alleviated market anxieties, investors remain cautious, closely eyeing the evolving economic landscape.

The US PCE data for August took centre stage, recording a fall to 3.9% for the first time in two years, offering a semblance of relief in the backdrop of escalating inflation concerns. Gold, however, did not mirror this optimism, sliding 0.88% as increased risk appetite following the dodged shutdown offset potential gains. Market participants are now weighing the potential implications of the sustained Treasury yields and ongoing UAW strikes.

Across the pond, the Eurozone is grappling with its set of economic challenges. Inflation in the area fell notably below expectations, amplifying concerns of a looming recession amidst whispers of an ECB hike. German retail sales, a key indicator of economic health, further dampened spirits with a contraction that underscored the ongoing economic vulnerability in the region.

Economic Calendar

UK Nationwide Housing Prices: An essential indicator to gauge the health of the UK’s housing market.

HCOB and S&P Global/CIPS Manufacturing PMI: Insight into the manufacturing sector's performance, influencing future economic policies.

ISM Manufacturing PMI: A critical data point offering a snapshot of the US manufacturing activity.

Fed Speeches: Addresses by Chair Powell, Harker, Barr, and Williams expected to shed light on upcoming monetary policies.

Quote of the Day

"The stock market is filled with individuals who know the price of everything, but the value of nothing." - Philip Fisher