Anna 
Today’s global economic focus centers on the release of the U.S. Consumer Confidence Index, including 5-10 year inflation expectations, by the University of Michigan. In recent months, inflation expectations have slightly declined from the peak of 3.1% in May to 2.8%.
European Central Bank President, Christine Lagarde, is scheduled to participate in a panel discussion at the International Monetary Fund’s (IMF) autumn meeting.
In the Nordic countries, the attention is on the Swedish Consumer Price Index (CPI) for September. Expectations are for core inflation to dip to 6.6%, slightly below the consensus forecast of 6.7%. The Riksbank is also set to release its initial report on both indicators.
US Inflation and Market Reaction: The release of September CPI data in the United States has been the most significant global macroeconomic and market event in the past 24 hours. While core inflation met expectations at 0.3% month-on-month (m/m), headline inflation exceeded expectations by 0.1 percentage point, reaching 0.4% m/m, equivalent to an annual rate of 3.7%. This data release had a profound impact on the bond market, leading to rising yields and a steeper yield curve, subsequently impacting risk appetite across asset classes, including strengthening the U.S. dollar.
The market reaction has increased the probability of another Federal Reserve rate hike, currently priced at around 40%. However, it is essential to delve into the details of the inflation data. The unexpected rise in housing prices, after several months of declines, was the primary driver of the increase. While other indicators suggest this spike may not be sustained, it is crucial to highlight that the underlying inflation measures referred to by the Fed are consistent with expectations. Consequently, it is our belief that U.S. policy rates have reached their peak.
Energy Market Stability: Oil prices have stabilized after earlier gains. The Israel-Hamas conflict has not escalated to the extent of affecting global oil supplies. The weekly U.S. inventory report presented bearish figures for the oil market, as U.S. crude oil production increased last week, and commercial inventories rose. Efforts to rebuild strategic reserves have also been halted by the government. We anticipate that oil prices will remain close to current levels in the near term.
China’s Economic Indicators: In China, September’s Consumer Price Index (CPI) data showed a decline to 0.0% year-on-year from August’s 0.1% (market expectations were 0.1% year-on-year). This brings headline inflation closer to deflation, primarily driven by lower energy and food price inflation. However, core inflation remained unchanged at 0.8% for the third consecutive month, signifying that widespread deflation is not imminent. Low inflation indicates weak demand relative to supply. In contrast, China’s trade data for September exceeded expectations, with exports improving from -8.8% to -6.2% year-on-year (market expectations were -8.0%). While external demand continues to be a drag, the headwinds are diminishing, possibly reflecting a global manufacturing recession’s alleviation. Import growth also strengthened, rising to -6.2% from -7.3% in August (consensus was -6.3%).
