① According to the schedule, the US Department of Labor will release the US October CPI data at 21:30 Beijing time; ② After two consecutive months of year-on-year CPI growth remaining at 3.7%, industry insiders will undoubtedly focus on the latest evolution of US inflation data.
Federal Reserve Chairman Powell made a hawkish statement last week that the Fed will not announce the end of its historic rate hike until there is more evidence that inflation is cooling. And for now, investors may be looking for more evidence of a pullback in inflation in tonight's US CPI report
According to the schedule, the US Department of Labor will release the US October CPI data at 21:30 Beijing time. After two consecutive months of year-on-year CPI growth remaining at 3.7%, industry insiders will undoubtedly focus on the latest evolution of US inflation data. The release of this October CPI report can be said to be at a critical moment in the market - although the significant rebound in the stock and bond markets over the past two weeks has been surprising, the hawkish comments of Federal Reserve officials still linger in the ears of investors, causing many traders to feel anxious.
From the latest bets in the interest rate market, the vast majority of industry insiders currently generally believe that the Federal Reserve, which can only "raise interest rates with its mouth" and shout slogans, has arrived at the "end" of this tightening cycle. According to the Federal Reserve Observation Tool of Chishang Exchange, the probability of the Federal Reserve raising interest rates by 25 basis points in January next year is only 26%, and it is likely to open the door to interest rate cuts by the middle of next year.
However, many Federal Reserve officials, including Federal Reserve Chairman Powell, are still trying to "play the game" at the end of the already locked in interest rate hike cycle - they are not willing to easily admit that they have completely closed the door to interest rate hikes. The most representative speech was undoubtedly Powell's speech last Thursday. Although Powell did not argue for an immediate interest rate hike, he pointed out earlier inflationary "false actions", where inflationary pressures had weakened in the past few times but then rebounded again, which surprised Federal Reserve officials.
Powell stated at the time that they would closely monitor the economic situation to avoid the risk of being misled by months of good data, as well as the risk of excessive interest rate hikes.
This series of foreplays and the differences between the market and the central bank can be said to have attracted the attention and attention of a large number of market traders for tonight's US CPI. So, then again, how will the CPI data perform tonight?
Multi image explanation: What is the market's forecast for tonight's CPI data?
According to the median estimate of economists surveyed by authoritative media, the year-on-year increase in the US CPI in October is expected to decline from 3.7% in the previous month to 3.3%, marking the first year-on-year decline in the US CPI in four months; On a month on month basis, the overall CPI in October is expected to slightly increase by 0.1% compared to September.
In terms of focusing more on core CPI by the Federal Reserve, the core CPI for October is expected to remain unchanged at 4.1% year-on-year in September and 0.3% month on month.
Obviously, from market expectations, industry insiders are currently more confident that the overall US CPI data will show a significant decline in October, but they also believe that core CPI may face certain obstacles if it wants to continue to decline. A relatively bearish background is that the year-on-year growth of the US core CPI has been declining for six consecutive months. If the year-on-year data of the core CPI falls to 4.1% as expected, it will break the downward trend of the previous six months.
The following is Nick Timiraos, a renowned journalist known as the "New Federal Reserve News Agency," listing the predictions of major Wall Street investment banks on tonight's US CPI data.
The Cleveland Fed's CPI proximity prediction model, which has had multiple precedents for accurately predicting CPI data in the past, shows that the year-on-year increase in CPI in October may reach 3.28%, with a month on month increase of 0.07% - which is also relatively close to market expectations overall.
Finally, a small detail we would like to remind investors about in terms of CPI estimation is that the actual announced values of the US CPI in August and September (3.7%) were 0.1 percentage points higher than the initial market estimate (3.6%). Looking back at the deviation between the actual published and estimated CPI values over the past year, it is not difficult to see that market forecasts have gradually shifted from overestimating CPI data earlier to underestimating CPI data. This may be worth investors being extra cautious tonight.
What are the driving and hindering factors for the CPI to fall back in October?
It is currently not difficult to foresee that the decline in energy prices may become a major boost to the overall CPI decline in the United States in October. After the summer consumer boom, energy consumption in the United States is gradually cooling down.
According to statistics from the US Energy Information Administration, gas station prices in the United States have fallen by 12% from their annual high recorded in September last week, and are currently at their lowest level since March and a new low in the same period in nearly three years.
National Bank of Canada Wealth Management (NBF) stated that "the energy sector may have a downward impact on the overall CPI index, which should translate into a slight increase in CPI of 0.1% month on month. If our judgment is correct, the year-on-year increase in CPI may drop from 3.7% to a four month low of 3.3%
Wells Fargo Bank also stated, "Since the end of September, gasoline prices have steadily declined, and food inflation seems to fluctuate horizontally. These factors support our expectation of an overall CPI growth of only 0.1% month on month in October. If achieved, this would be the smallest monthly increase since May
In addition to energy prices, another inflation category that saw a significant decline in October may be second-hand car prices. Data released earlier this week showed that the Mannheim second-hand car price index released by automotive research company Cox Automotive continued to decline in October and has reached its lowest level since April 2021. The Mannheim second-hand car price index in October was only 209.4, a decrease of 2.3% compared to September. The index has also fallen by 4% compared to the same period last year.
Liz Ann Sonders, Chief Investment Strategist at Credit Suisse Wealth Management, mentioned on social media platform X that the Mannheim second-hand car price index has now fallen by 18% from its peak - the largest drop in the index's history.
Of course, although tonight's CPI data has the favorable factors driving the slowdown in price growth mentioned above, there are also some unfavorable factors present. The change in the way the US government estimates healthcare insurance costs is expected to slightly lift inflation indicators in this field, thereby reversing the trend of some easing in recent months.
It is reported that starting from the October CPI released on Tuesday, the US Bureau of Labor Statistics will make some adjustments to the formatting of this category. In addition to routine changes in the source data, the new method will aim to smooth out some fluctuations and reduce the lag of the index in time.
Imperial Commercial Bank of Canada stated that tonight's inflation data may continue to reflect the strong price pressure on demand sensitive categories such as core services other than housing, and the tug of war between the easing of commodity prices brought about by supply chain normalization. When evaluating the appropriate degree of monetary tightening, the Federal Reserve will look for clues about the sustainability of these two forces. Housing inflation will also be an important focus, as its performance in September was surprising and this year's performance has been even stronger than expected.
Coming to CPI "Judgment Day" again, financial markets are waiting for it
Although in recent months, the volatility of the US financial market on the day of the CPI release has been far less pronounced than in the second half of last year, it is undeniable that tonight's CPI report may still become a key catalyst for playing the role of the US stock and bond market.
Before the October CPI data was released on Tuesday, the yield of US treasury bond bonds closed slightly on Monday, and US stocks also rose and fell, reflecting the strong wait-and-see sentiment of insiders before the disclosure of the heavy data tonight.
Chris Larkin, Managing Director of E * Trade, stated that there is enough highly anticipated economic data this week to tilt the market towards either side. Most people's attention will be focused on the latest inflation data, and in addition, Wednesday's retail sales data will also help the market set the tone.
Prior to the release of the Consumer Price Index report, a survey conducted by 22V Research showed that most investors did not believe that inflation indicators were on a "Fed friendly path". Among the respondents, 36% believe that tonight's market reaction will be 'risk aversion', while only 31% believe that the market reaction will show 'increased risk appetite'.
Jim Reid, strategist at Deutsche Bank, said that the highlight of this week will be the US CPI announced on Wednesday. The market unanimously believes that the Federal Reserve has basically won on inflation issues, and people will definitely be very excited about the potential dove turn. But this is far from the first time that the hope of a dove turn has excited the market (Deutsche Bank's previous report believed it was already the seventh time). If core inflation remains above 3% for a long time, then there is no doubt that the Federal Reserve will seek to tighten policy again.
John Stoltzfus, Chief Investment Strategist at Oppenheimer Asset Management, believes that due to many people believing that the Federal Reserve will maintain a "pause" or "skip" mode for a longer period of time, but it is unlikely to cut interest rates soon, the market may still be "prone to volatility".
For tonight's market trend, Stifel Nicolaus& Lauren Henderson, an economist at Co., said, "From what we have seen in the past, the market as a whole has seen a downward trajectory of inflation and believes that the Federal Reserve has ended raising interest rates. If we see (overall data) continue to decline, the market will reflect (an increase)
However, Henderson also mentioned that super core inflation - core services that do not include housing - will be important. The risk is that inflation expectations may continue to rise, as inflation is still well above 2%, which may cause further trouble for the Federal Reserve. We believe that the Federal Reserve is approaching its peak, but there is still further price pressure in the economy, which will force the Federal Reserve to raise interest rates at least once again or maintain them above market expectations for a longer period of time
FXStreet analyst Yohay Elam, on the other hand, stated that only when there are "annoying upward surprises of 0.2% (CPI month on month) or more" will the market reassess the prospects of the Federal Reserve (which will not raise interest rates again).
If the data unexpectedly falls, the frenzy on Wall Street will continue, and the US dollar will suffer another blow. If the overall performance of the data is as expected, a decrease in overall inflation may immediately have a positive impact on the stock market and put pressure on the US dollar - even if core CPI remains high, "Elam added.