CPI Preview: All Eyes on US data

We’re seeing some risk aversion in financial markets on Thursday as we await inflation data from the US later in the week.

Considering how well they’ve performed in recent days and weeks, it probably won’t come as a surprise to many that we’re seeing stock markets in the red. It would appear we’ve seen a lot of buying on the hope of a Fed pivot and some weaker inflation and labour market figures.

Oil prices fell again on Wednesday, taking losses over the last couple of days to more than 5%. Brent and WTI are basically flat on the day at the time of writing, settling towards the lower end of their recent trading ranges.

Gold has steadied over the last 24 hours after surging late last week and early this in the hope that inflation data delivers what the Fed and investors crave so much. It’s a very hopeful-looking move and one that could end badly if the CPI data continues this year’s disappointing trend to the upside.

EURUSD has lost its traction and declined below 1.0000 in the early European morning on Thursday. The near-term technical outlook points to a lack of buyer interest but the market reaction to the October Consumer Price Index (CPI) data from the United States could drive the pair’s action in the second half of the day.

The risk-averse market atmosphere helped the US Dollar (USD) gather strength on Wednesday and caused EURUSD to snap a three-day winning streak. With investors remaining cautious early Thursday, the pair has difficulty shaking off the bearish pressure. The US Dollar Index, which gained 0.75% on Wednesday, was last seen posting small daily gains at 110.55.

The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) data on Thursday, November 10 at 13:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 4 major banks regarding the upcoming US inflation print.

Wells Fargo

“While the headline index is expected to slip to 8.0% YoY, we look for the monthly gain to strengthen to 0.6%. We expect to see a rebound in the price of gasoline and a still-high, albeit moderating, food inflation rate drive the headline increase. Core inflation is likely to slow a touch, but remain uncomfortably high with a 0.5% monthly increase. While softer core inflation in October, if realized, would indicate that inflation is at least no longer worsening, a return to the Fed’s 2% target remains a long way off and will keep the Fed in tightening mode for some time.”

BofA

“Headline CPI likely increased by 0.5% MoM in October, partly due to the first increase in energy prices in four months. On a YoY basis, headline inflation should fall from 8.2% in October to 7.8%. Core CPI, meanwhile, should moderate from 0.6% MoM to 0.4% MoM. This would result in YoY inflation falling from 6.6% to a still elevated 6.4%.”

ANZ

“We expect US core CPI to rise by 0.4% MoM in October. Higher energy and food prices should increase headline inflation by 0.7%. There are encouraging signs that price pressures are easing in some goods and services, but they remain too elevated. The cost of new rentals is easing, new and used car prices are softening, and health insurance premiums are set to fall from October. Wage growth looks to have peaked as the Employment Cost Index has eased across multiple industries in Q3. However, wage growth remains well more than what is needed to get 2% inflation. Although the Fed may soon slow the pace of its tightening, much more work remains to be done as it remains singularly focused on inflation.”

CIBC

“The relief from higher prices at the pump ended in October, as prices climbed into mid-month, with OPEC+ announcing supply curtailments. Combined with broad price pressures in other categories, the total CPI likely accelerated to 0.7% on the month, leaving the annual inflation rate lower at 8.0%. Excluding food and energy, core prices likely remained heated with a 0.5% gain on the month, reflecting continued pressure in the shelter price index as leases reset at higher rates, lagging housing market developments. High demand for other services likely added to that pressure, however, some easing in core goods prices could have been masked by the headline, as industry gauges of used car prices have fallen along with the fading of supply chain issues in that sector. We are in line with the consensus and market reaction should therefore be limited.”