Spreadex Market Update
US CPI Is the Headline Event Today – Traders Braced For Volatility
All eyes today will be on the latest set of US CPI figures. Despite plenty of bearish chatter, yesterday’s PPI figures came in above expectations, at 0.4% vs 0.2% on the headline figure, suggesting that today’s data has the potential to surprise the upside also. While USD has been relatively muted over the last 24 hours, there is plenty of scope for a push in either direction around the figures, given their importance in determining the likelihood of a larger Fed move in November. Today's upside surprise should see the USD moving to fresh highs, dragging risk markers lower into the end of the week.
Key Factors for Today
- USD higher ahead of CPI today – PPI upside surprise seen yesterday
- FOMC minutes reaffirm Fed hawkishness
- Equities often amidst USD strength – CPI on watch
- UK GDP turns negative – BOE bond purchases due to end tomorrow
- Metals & oil lower again
Coming Up
- Oil EIA Inventories
- All G20 meetings
- USD US CPI
Equities Lower Ahead of US CPI
Equities prices have come back under pressure this week, given the uptick in USD. With the risk of a fresh USD upside move, if today’s US CPI is strong, markets look vulnerable here, given that most indices are sitting at or near recent lows. Fresh fears around further potential market volatility if the BOE does in fact end its bond purchase program tomorrow are adding to bearish sentiment. There is some uncertainty around whether the bank will terminate operations; however, yesterday, the UK chancellor appeared to wash his hands of the situation, saying that any ensuing market turmoil was firmly under the BOE’s jurisdiction and not the government’s fault.
Marks & Spencer Restructuring
Shares in iconic UK retailer Marks & Spencer are trading lower today following news yesterday that the firm is to dramatically reduce its number of stores. M&S detailed a new five-year plan which will see it cut the number of UK stores from 247 to 180. However, the group also outlined plans to open 104 new “simply food” sites, reflecting its decision to restructure the business to focus mostly on food.
US CPI On Watch
In FX, the US Dollar is trading higher ahead of today’s US CPI release, weighing on risk currencies. Today, we’re seeing muted action across the FX space as traders await the inflation figures. Today’s data is likely to set the tone for USD into the November FOMC next month and so will be pivotal for FX traders.
Hawkish FOMC Minutes
The FOMC minutes released last night offered little in the way of new information. Given how hawkish recent Fed commentary has been since the meeting, the minutes seemed less potent. However, with the Fed seen firmly focused on continuing its tightening program, yields were seen higher on the back of the release.
UK GDP Turns Negative
Yesterday we saw UK GDP coming in below expectations, at -0.3% in August, raising the risk of recession in the UK. Traders now wait to see how GBP and UK assets will react if the BOE ends its bond purchase program tomorrow in line with original guidance.
Metals & Oil Decline As USD Rally Continues
In the metals and commodities space, both gold and silver are back under pressure today as the USD sees fresh demand. Yesterday’s US PPI release has raised risks of an upside surprise in today’s US CPI release, which, if seen, will push metals prices sharply lower. Oil prices are pushing lower again through the European open on Thursday, with the crude futures having now given back around 8% this week. Focus today will be on the latest EIA release, with the market looking for a 0.9 million barrel build.
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