By Chris Dorrell
Tuesday’s US inflation report will be the highlight of a busy week for markets that will also include a health check on the state of US consumption.
Inflation has fallen from a peak of over nine per cent in summer 2022 to 3.7 per cent in September, which was unchanged on the month before.
The headline rate of inflation is expected to fall to around 3.3 per cent in October’s report, although core inflation – which strips out volatile components such as food and energy – will remain at 4.1 per cent.
“These will probably be the most influential data points towards determining the view on whether the FOMC is done with tightening,” Philip Shaw, chief economist at Investec said.
The Fed left interest rates on hold for the second consecutive meeting last month, but resilient growth and stubborn inflation has raised the chances that a further rate hike could be in the offing in December.
Traders will get a further health check on the state of the US economy when retail sales for October are released. Strong consumption has driven the US economy so far this year, but analysts expect a fall in retail sales as higher interest rates impact consumers.
“There is one other number to watch when assessing the October retail sales figure and that is the personal savings rate,” Russ Mould, AJ Bell’s investment director said.
“Some economists are arguing the drop here – as stimmy cheques are no longer available – is a sign that US consumers may have to cut back on their spending at some stage,” Mould continued.
China will also be in focus for markets when it releases industrial production and retail sales data on Wednesday.
“The indicators will be closely watched following this week’s CPI miss as well as last week’s disappointing PMIs,” analysts at Deutsche Bank commented.
China has faced a “tortuous” recovery from its draconian Covid lockdowns, which has seen the world’s second largest economy flirting with deflation.
