Inflation a key theme, with both US and UK CPI expected to break lower

Asian markets enjoyed a welcome boost overnight, with the Hang Seng pushing 1.3% higher over the course of the session. Coming ahead of Wednesday’s meeting between President Biden and Xi Jinping, there is a sense of optimism that we could see some headway made around US-China trade restrictions, Taiwan, and the conflicts in the Middle East and Europe. With China also set to release a host of key data points on Wednesday, there is likely to be significant degree of volatility for related markets and assets.

This week looks likely to be dominated by inflation, with both the US (Tuesday) and UK (Wednesday) reporting their latest CPI figures for October. Coming off the back of multi-month periods of stagnant or rising inflation, the expectation of a notable decline across both figures should help appease those calling for additional rate hikes in the coming months. With risk assets beginning the week on a positive footing, there is a good chance that we enjoy a period of strength across equity markets if the forthcoming inflation metrics further weaken the hawkish story as expected.

The US shutdown story looks to provide one reason for caution this week, with Congress faced with precious few days to pass a new stopgap bill before funding runs out after November 17. The House plan to vote on a stopgap proposal from Speaker Mike Johnson on Tuesday, which could help push funding into late January. However, Moody’s decision to shift the US credit rating outlook from stable to negative on Friday signalled a growing feeling that the country is becoming increasingly unstable under the weight of increased debt and ballooning repayment costs.