Public and private investors are understandably on high alert. In their excited expectation of the release of some important economic data that would materially change the market’s dour sentiment in the third quarter. Mid-October will see the release of the CPI and NFP numbers. These numbers are sure to affect rate expectations along with setting the economic mood as we march toward the end of 2023.
The CPI report, particularly the Core CPI and the general CPI for September, will be released on Wednesday, October 15, at 15:30. Economists say these numbers will be a key factor in determining interest rate expectations as we head into the close of the year. The baseline case calls for a 0.3% MoM increase in Core CPI. This increase would be consistent with continuing the current disinflation path. If the CPI is indeed strong, say 0.4% or more figures, expect prejudice against easing measures to be quickly reassessed. This new shift would likely drive Treasury yields up and the U.S. dollar higher.
Impact on Federal Reserve Decisions
The soon-to-be-released CPI data will likely be the most important price data for determining whether or not the Federal Reserve raises rates again. Investors are understandably nervous that any upside surprise on inflation could result in a backtrack on monetary policy. The Federal Open Market Committee (FOMC) closely monitors inflation indicators, and any substantial deviation from expected ranges might trigger preemptive adjustments in interest rates.
That’s why the CPI figures and NFP data will continue to interact powerfully. Combined, these two forces will be a powerful double catalyst that sets the course of the market. That combination could shatter the prevailing “Goldilocks” story of just-right growth and tempering inflation. A softer inflation report paired with job creation falling well short of 120,000 would increase expectations for more easing in October and December. This change would significantly affect monetary policy as we head into an election year.
Moreover, as global financial markets continue to wrestle with a fundamental uncertainty around inflation, the repercussions of the CPI report stretch far beyond US shores. The Eurozone is set to release its CPI data on Friday, October 17, at 12:00, which will further influence global economic sentiment.
Global Economic Landscape
Though all eyes may be glued to U.S. data releases, we still have some big economic feasts to come. The United Kingdom’s GDP for August release is scheduled for Thursday, October 16. This could be drowned out by the much more market-moving CPI and NFP data. Similarly, German CPI for September is expected to be released earlier on Tuesday, October 14, at 09:00, adding another layer of complexity to the global economic landscape.
How the U.S. inflation metrics fold in with European data will go a long way towards forming macroeconomic narratives as we move deeper into Q4. Analysts are scrutinizing how evolving trade rhetoric and international relations will affect these figures and their subsequent impact on markets.
Market Reactions and Future Projections
Reactions from the market to these soon-to-be-released materials are likely to be strong. A hot CPI reading could lead to an immediate repricing of easing paths, resulting in heightened volatility across asset classes. If that were to happen, Treasury yields likely would spike in response, affecting government borrowing costs and private investment strategies.
Traders closely watching the Fed’s every move precautionarily recognize that any indication that inflation remains stubbornly high may lead to a hawkish reversal in market sentiment. The current trend for an unspecified currency pair remains lower unless it reclaims a critical resistance level of 0.5789, identified at the Fib 61.8% retracement level.