US CPI provides the main event today

Another strong session overnight in Asia has seen the Japanese Nikkei 225 rise into record highs thanks to an optimistic outlook over the expansionary policies from new PM Takaichi. This comes despite the unwelcome rise in Japanese inflation, which rose to 2.9% to signal that the BoJ may need to hike in the near future. Notably, despite the uncertainty over relations between the US and China, equity markets have managed to perform remarkably well, with the Shanghai composite rising to the highest level in a decade. The five-year blueprint laid out for China included a focus on the need to raise domestic consumption in a bid to ease reliance on international trade. There is a hope that this could mean new measures to raise economic activity and confidence in a bid to encourage higher activity.

In Europe, the release of somewhat mixed PMI data, with the services sector particularly showing strength amid gains in Germany and the eurozone. That helped push the eurozone composite PMI into a 17-month high, built off the back of a two-year high for new orders for the month of October. Crucially, input prices moderated to levels lower than the average, highlighting the fact that the region sees very little signs of a resurgence in price pressures despite concerns in the US and UK. This morning also saw fresh retail sales data out of the UK, with a surprisingly strong September figure of 0.5% marking the fourth consecutive month of higher spending. Crucially, we have seen non-store sales move higher, with consumers seeking to take advantage of a weak dollar and gold purchases grew in prominence as prices hit record highs.

Today brings a rare dose of economic data out of the US, with CPI inflation figures belatedly due for September. Coming ahead of next week’s FOMC meeting, the ability of today’s release to change the perception of the markets is questionable, with the CME currently pricing a whopping 99% chance of a 25bp cut next week. That figure may weaken somewhat with a high inflation print today, but in all likeliness the more questionable meeting comes in January given that markets attach a 55% chance of additional easing.