Another US inflation release above expectations while market looks for ECB rate cut this week

Good morning

US PPI on Friday came in above expectations, following Thursdays higher CPI inflation.  A 50bps at the next Fed meeting now looks more unlikely, although not impossible.  USD has remained supported, as I type GBPUSD is 1.3060, EURUS 1.0925 and USDJPY 149.30.  A slightly lower Michigan sentiment number prevented USD pushing back towards recent highs.  GBPEUR now 1.1955, GBPJPY 195.00. 

Euro is under a bit of pressure after Fitch revised French outlook to negative, although for now its rating remains unchanged.  The French government are looking at spending cuts and tax rises but may fear this will not be enough to improve the outlook for France.  Meanwhile Belgium’s outlook has been downgraded to negative by Moodys.

There was a China Ministry of Finance press conference over the weekend where it was hoped we may learn more about stimulus plans.  However while some promises were made, no plans were really detailed.  China equities held up well despite the lack of clarity.  China trade balance due tonight, I’d incorrectly thought it was out early this morning.  Meanwhile plenty of talk of tariffs on China EV imports, US and Canada has tariffs at 100%, EU up to 35% so far.  China are not happy, but the tariffs are not stopping the supply and sales of China electric vehicles.  

Taiwan is on alert as China embarks on another military drill, flexing its muscles after Taiwan President Lai refused to acknowledge Taiwan is part of China.  Only a matter of time I fear before China lose patience and take back what they regard as theirs. 

New Zealand services PMI came out at a disappointing 45.7 overnight, supporting the case for further RBNZ easing.  A 50bps cut in November to take rates to 4.25% looks likely, with rates forecast to head below 3%

Several notable moments over the weekend.  Musks SpaceX launched their latest Starship on its 5th flight, the vehicle was the most powerful to ever take off and at 122 metres tall was, I believe, the tallest.  But what made this so special was the fact they ‘caught’ the 71 metre tall booster as it returned to earth, with it falling fast, igniting rockets to slow its descent and eventually hovering around the launch tower before being caught but pincer-like arm.  It really didn’t look real, more like some sci-fi show.  Well worth a watch even if it’s not normally your thing. 

In football, England managed to look like a football team once again, with a 3-1 win over Finland.  No more than we’d expect really, but certainly a welcome improvement on the recent match against Greece. 

In other sports, GB has fallen behind 3-0 to the Kiwis in the first races of the Americas cup, race four was abandoned due to lack of wind, Not an ideal start.  All is not lost but NZ will be pleased to have won three races already in the best of seven event. 

Columbus Day in the US today, a holiday for some but not all.  Eyes ion Feds Waller speaking later this evening as he discussed the economic outlook, we’ll look for any mention of the higher inflation readings last week. Waller is generally one of the more hawkish Fed members, although he did vote for the 50bps cut at the last meeting and has recently mentioned the speed with which inflation has moderated. 

It is a bust week for UK economic data, starting with unemployment tomorrow morning, inflation figures Wednesday and retail sales numbers Friday.  However with the UK budget now not far off there is some thinking that BoE will look past these sets of data, instead preferring to see what changes Reeves will make before considering monetary policy. 

This week also brings Canada and NZ inflation, Aussie inflation, US retail sales and China GDP among other, while of course eyes are on ECB to see if they will indeed cut rates as expected at their meeting on Thursday.  Lagarde actually speaks on Wednesday evening which I think is unusual, so close to a rate meeting.   

Its wet here today, very wet, and looks like staying that way for much of the week. Better get some work done then…..

-  10.45 ECBs Nagel speaks

-  14.00 Feds Kashkari speaks

-  20.00 Feds Waller speaks

-  22.00 Feds Kashkari speaks

-  03.00 China trade balance

-  07.00 UK unemployment