Hot CPI helps cement December Fed hike as Nvidia slumps

Hot CPI data increases odds of a Fed rate hike next month

October CPI inflation landed yesterday and beat expectations across the board. Note that we only received the MM figures because of last year’s government shutdown. Headline MM came in at 0.4%, beating the 0.3% forecast, though below September's 0.6%. Core MM also came in at 0.3%, slightly higher than the 0.2% estimate and matching the prior month’s reading. This has prompted investors to add to their December Fed rate hike bets, with OIS pricing in 27 bps of tightening (a hike is fully priced), and another hike in January is 50/50.

Ultimately, though, I was looking for a miss for several reasons, including the lacklustre response to last Friday’s US jobs report, the hawkish Fed pricing, and positioning data showing the buck modestly overstretched to the upside. In my view, this was only a ‘modest’ beat – I would have needed 0.5% headline and 0.4% core to be more convinced – with the immediate market response showing moderate upside in the USD and front-end yields, along with a pop lower in gold and US equity index futures.

Earlier, Fed Governor Christopher Waller hit the wires and said he is open to a 50 bp hike if core inflation comes in at 0.3% or higher. I found this a little odd, as he was the chap calling for cuts when he was in line for the Fed Chair spot. The USD ticked up slightly on those comments, but it was nothing to write home about.

UK GDP numbers in focus

Today’s data slate is quiet, with US banks also closing in observance of Veterans Day. Thursday, however, will welcome the September UK GDP data and weekly US unemployment claims for the week ending 7 November.

While both events tend to offer limited volatility, I will watch the UK data, as it can provide a quick scalping opportunity. I will primarily watch monthly GDP, expected to come in at -0.1% from 0.1% in August, along with the preliminary Q3 QQ print, forecast to grow to 0.7% from 0.5% in the previous quarter.

While a beat would support BoE Lombardelli’s view that the UK economy may have ‘less slack’ than the bank's central estimate, the fact that a hike is already largely priced for December could limit GBP upside. A miss, therefore, would suggest more volatility in the GBP – I would be looking for -0.3% or below for MM and 0.4% or below for the QQ release. You generally need at least 0.2%/0.3% deviations to move the GBP enough.

Nvidia weighs on markets

In other news, Asia-Pac shares traded on a firmer footing overnight, with South Korea’s KOSPI and Japan up 2.6% and 1.3%, respectively. That follows a soft US session, where the S&P 500 closed down 0.4%, and the Nasdaq 100 lost 0.6%, with tech the weakest sector. Nvidia was the main drag and is roughly 30% off its October high.

Reports that the board hired a former federal prosecutor to look into Nvidia’s CEO Jensen Huang’s alleged links to a Chinese spy have kept the stock under pressure. Separately, the Commerce Department is reportedly delaying a decision on blacklisting Megaspeed – the company linked to the case. Nvidia’s earnings next week now carry extra weight, with the market looking for reassurance that Huang remains focused on the business.