US CPI due, with energy rebound unlikely to impact inflation for now

A somewhat downbeat start for European markets has seen indices throughout the continent move lower despite an Asian session that saw yet another 3% added onto the Hang Seng. While Chinese markets sold off heavily in the wake of an underwhelming NDRC presser on Tuesday, we have seen a more upbeat tone taken overnight after the PBoC provided detail around the circa $70 billion swap line for institutions and pensions to borrow against their assets in a bid to ramp up demand for Chinese equities and bonds.

Markets continue to watch out for fresh signs over the potential trajectory of US rates, with the FOMC minutes serving to highlight the openness to another 50bp cut in November. While some members did signal the potential for a 25bp move, it seems that many had expected to maintain the stimulative push established in September. Nonetheless, with the bank remaining data dependent, the strength of the latest jobs report will have undoubtedly eased concerns that the US economy is heading towards a recession.

Today brings a fresh focus on US inflation, with the recent surge in energy pushing inflation expectations higher. On this occasion markets are looking for a fresh decline that could take headline CPI to 2.3%. Nonetheless, the record highs seen for US markets does highlight a confidence that we can maintain the sweet spot of low inflation and a relatively strong US economy. The inflation element remains the key to market stability, and thus any particular spike in price pressures could see all the current monetary policy expectations undermined entirely. Joe Biden will know well the risk to a Democratic election victory if the actions of Israel result in a sharp surge in energy prices, and thus he will more than likely push for any retaliatory attack against Iran to target locations other than oil or nuclear facilities.