Markets await US CPI and UK jobs data

Headlines

* Goldman Sachs and Morgan Stanley diverge on Fed rate cut forecasts

* Traders say UK inflation risks undoing aggressive rate cut bets

* Meta’s stock advances towards longest winning streak in almost three years

* US October CPI could prove to be anther inflation head fake

FX: USD dipped for a second straight day as traders await US CPI. A soft report should keep Treasury yields trending lower. That’s because the market believes the Fed’s tightening cycle will be done. Focus will then turn to retail sales on Wednesday. They could better reveal the economy’s strength. The DXY is trading around its 50-day SMA at 105.68.

EUR picked up on little fundamental news. This week’s focus will be more ECB speakers. The pick of the data will probably be Q3 GDP which is seen printing negatively. Market are pricing in nearly three rate cuts next year. Resistance in EUR/USD is 1.0756/65.

GBP was the outperformer on Monday. This was possibly on the government reshuffle which brough back an old PM in David Cameron, while the home secretary was sacked. It’s the middle of the month so lots of important UK data is released. Initial resistance in cable is 1.2337.

USD/JPY hit a one-year high at 151.90. The major then fell sharply in seconds amid nearly $3.5bn of options that come due this week. It eventually settled higher for a fifth consecutive day. A soft US CPI report should keep Treasury yields lower. The October 2022 top is at 151.94.

AUD enjoyed its first green day in five. But the major tapped the 50-day SMA at 0.6385 and closed below.

Stocks: US equities were mixed ahead of US CPI. Prices consolidated Friday’s upside breakouts, printing dojis. The benchmark S&P 500 lost 0.08% to settle at 4411. The tech-heavy Nasdaq finished 0.30% lower at 15,482. The Dow settled 0.16% higher at 34,337. A mild holding pattern took place which is natural after last week’s move higher and ahead of important data.

Asian futures are in the green. APAC stocks traded mostly subdued to kick off the week. Focus will be on Chinese activity data released midweek while the Biden-Xi meeting takes place in the latter part of the week.

Gold closed higher after sliding below the 200-day SMA at $1935. It did this on Friday before also settled above so should be support. All eyes are on US data this week.

Day Ahead – US CPI, UK Wages

We obviously have important UK and US CPI releases this week. Before those is wage growth and jobs data out of the UK. Headline earnings growth is expected at 8.3% versus a prior 8.1%. The ex-bonus print is seen holding at 7.8%. The jobless rate is predicted to tick up one-tenth to 4.3%. The BoE has left rates unchanged for two straight meetings. The lack of reliability in the data is likely to see policymakers on hold for an extended period unless we see the disinflation process slowing materially.

Headline US CPI is expected to decline to 3.3% from 3.7% in September, primarily due to falling gasoline costs. Core inflation, which strips out volatile energy and food prices, is forecast to remain at 4.1% with the monthly figure at 0.3%. Any signs that inflation is more persistent than expected could derail the now consensus view that the Fed is done with rate hikes. That should boost the dollar and hurt stocks.

Chart of the Day – US Dollar Index rebounds back into range

The greenback bounced back last week after Fed Chair Powell said the central bank still had “a long way to go” in its fight to bring inflation back down to the 25 target. Previously after the recent FOMC meeting, Powell had said it would proceed carefully with future rate decisions. Markets liked this dovish message which it took as a sign that the Fed was finished hiking. Money markets price in around a 20% chance of a rate hike by January.

US Retail Sales released on Wednesday will also be watched to see if tighter credit conditions are hurting the consumer. Resistance on the USDX is around the 50-day SMA at 105.87 and support at a long-term Fib level at 105.38. Resistance above is the 50% point of the October 2022 decline at 107.17.