Market Volatility Rises Ahead of Fed Decision

Market volatility is on the rise as uncertainty looms over the Federal Reserve's upcoming decision. Fiscal concerns, coupled with economic developments across the globe, are keeping investors on edge.

Key Factors for Today

• The US housing market is grappling with challenges as mortgage rates surge to their highest levels since 2007, putting pressure on housing starts, which fell by 11.3% when only a 2% expansion was anticipated.
• Europe experiences unexpected expansion in core inflation, challenging the narrative of disinflation. Despite a slight downward revision in annual inflation to 5.2%, core inflation remains elevated, leaving the European Central Bank with food for thought.
• Canadian inflation figures outperformed expectations, with annual inflation surging to 4%. This boost propelled the Canadian Dollar, albeit temporarily, as the USD/CAD pair touched lows not seen in a while.
• Crude oil stocks in the US saw a significant drawdown for the fifth consecutive week, defying analysts' estimates. However, despite this positive news, WTI oil prices retreated from a 10-month high as profit-taking ensued.

Market Movers

• Housing starts in the US disappointed, sinking for the fifth time this year, with mortgage rates soaring to a staggering 4.366%.
• In Europe, while overall inflation dipped slightly, the cost of services remained high, and core inflation expanded unexpectedly, causing ripples in the EUR/USD exchange rate.
• The Canadian Dollar strengthened against the US Dollar following robust inflation figures, though price action later retraced.
• Crude oil stocks in the US recorded their fifth consecutive decline, but WTI oil prices dipped after reaching a 10-month peak.

Economic Calendar

• GB Inflation
• ECB Schnabel Speech
• EIA Crude Oil Stocks Change
• BOC Summary of Deliberations
• Fed Interest Rate Decision
• Fed Press Conference
• NZ GDP Growth

The Big News

Challenges Loom for US Housing Market as Starts Plunge and Mortgage Rates Soar

The US housing market, a significant barometer of economic health, is facing headwinds. Housing starts dropped by a surprising 11.3%, far from the expected 2% expansion. What makes this decline even more concerning is the surge in mortgage rates, which have now reached their highest levels since 2007 at 4.366%. The combination of falling housing starts and higher mortgage rates could exert sustained pressure on the housing market, a critical driver of the US economy.

Europe's Inflation Conundrum: Stubborn Core Expansion and EUR/USD Uncertainty

In Europe, the inflation picture is nuanced. While annual inflation was revised slightly downward to 5.2%, core inflation remained stubbornly elevated. Even more surprisingly, core inflation unexpectedly expanded by 0.3%, challenging the prevailing disinflation narrative. The EUR/USD exchange rate struggled to break through the $1.07 mark, revealing underlying uncertainty.

Canadian Inflation Surges to 4%, Boosting Canadian Dollar Amidst Economic Strength

Canada, on the other hand, witnessed an inflationary surge. Annual inflation shot up to 4%, surpassing economists' expectations of 3.8%. Core inflation also showed resilience, rising by ten basis points annually. This strong data bolstered the Canadian Dollar temporarily, with the USD/CAD pair touching lows not seen recently.

US Crude Oil Stocks Continue Decline, but WTI Prices Retreat from 10-Month High

In the energy sector, US crude oil stocks continued their trend of drawdowns, recording the fifth consecutive decline, this time by a significant 5.25 million barrels. This development, however, failed to sustain WTI oil prices, which retreated after reaching a 10-month high of $92.65 per barrel. Investors took the opportunity to secure profits ahead of the Federal Open Market Committee (FOMC) meeting.