The US Fed cut rates by -50bps a few weeks ago, then more recently, we learned the US labour market is still expectation-defyingly hot.
To some this was a panic signal: will there be no more rate cuts this year?
To others, it was a good thing: here comes that fabled soft landing.
At this point, tonight’s US CPI data will likely be interpreted as evidence for one of two views: that the -50bps rate cut could have been too soon, or, that everything is fine.
Should everything be perceived to be doing fine, we’re probably going to see a pretty good November: generally the best month for stock markets (on Wall Street, at least, which the ASX nearly always imitates.)
But if CPI comes in hotter than expected – and in aggregate, I’ll note here there aren’t any widespread warnings of a serious shock – it could quench the view we’ll see more US rate cuts this year.
Whether or not that alone would be enough to kill a Santa Rally is unknowable but it’s obvious there would need to be a serious shock to do that – especially given Wall Street (and to a lesser extent the ASX) have had an insane year, consistently hitting all-time-highs every few weeks.
There’s also the consideration, which I hark on about often, that markets don’t really care about inflation numbers anymore. I have no data science to back that up, but I’m pretty sure it’s correct based on vibes.
There are, however, good reasons some are perhaps bracing for bad news, whether overabundant in caution or not.
Brent Crude prices have ticked up over the last few weeks, thanks to the Middle East’s unfortunate circumstances, and the fuel price is huge for inflation (core inflation excludes it.)
Of course, that wouldn’t necessarily show up in this data drop. Nor is it certain to increase CPI at the next release.
It seems likely – bar a mass shutdown of the Gulf of Mexico – only a (larger) war involving Iran, probably, could push oil prices dramatically higher for the foreseeable future.
And while housing inflation is slowing (or it’s just starting to,) it’s still prevalent, which remains a larger problem for Australia’s disinflation journey more than America’s – but similar trends echo across.
But without doubt, inflation is clearly on a downtrend for most countries worldwide.
(Much currently vogue political rhetoric at home and overseas apparently forgets no world government could have possibly controlled COVID-era-borne inflationary pressure – here, one must respect chaos.)
The good news: most analyst houses believe US CPI will show 2.3% for September; down from 2.5% in August.
FactSet Insight – a company that compiles analyst consensus – found that of 17 economic forecasts from investment banks and counterpart entities considered, the median expectation is for 2.3%.