13 December 2023
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Inflation in the US will keep Fed on the sidelines

Daily Outlook - 13 December 2023

By Edward Bell

Inflation in the US came in largely in line with market expectations for November. Headline CPI rose by 3.1% y/y, down from 3.2% a month earlier, while the monthly pace of inflation was slightly faster than expected at just 0.1%, compared with no change a month earlier. Core inflation was inline with target at 4% while so-called “supercore” inflation, core services ex-housing, rose to 3.9% from almost 3.8% a month earlier. The CPI report for November gives credence to a slow and steady disinflation in the US but is unlikely to shift the Federal Reserve to thinking that it can easy policy any sooner. We expect no change from the FOMC when it concludes its meeting later tonight.

Labour market data from the UK gave some signs of cooling in the economy. Total payrolled employees fell in November by 13k, well under market expectations of an expansion of 5k and compared with 33k added a month earlier. At the same time, average weekly earnings in the three months to October eased to 7.2% y/y from 7.7% in the prior three-month period. The ONS alternative estimate for the unemployment rate remained at 4.2%. The pull back in wage growth may be welcome news for the Bank of England though it still remains high compared with peer economies and we expect that the BoE will keep policy unchanged at this week’s MPC meeting.

Germany’s ZEW survey of investor expectations was better than expected for December, rising to 12.8 on the headline index and up from 9.8 a month earlier. The current conditions assessment improved—though is still deeply negative—rising to -77.1 from -79.8 a month earlier. The forward looking component was the strongest since March this year and suggests that Germany’s economic slump may have hit a bottom. Inflation in Germany has slowed markedly this year, rising by just 3.2% as of November compared with nearly 9% in January-February 2023. Expectations that the ECB may also turn to an easing policy sooner rather than later are also likely helping improve investor sentiment.

Inflation in India rose to 5.55% for November, not as hot as markets had been expecting but still an acceleration for the 4.87% recorded for October. Food inflation picked up to 8.7% for November from 6.6% a month earlier while core inflation ticked lower, down to 4.1% from almost 4.3% in October. Elsewhere, India reported an 11.7% rise in industrial production for October, its strongest print all year, with solid gains across nearly all sectors.

The UAE and Australia will reportedly begin negotiating a “trade pact” in 2024 according to press reports citing Australia’s trade minister. The UAE already imports food and animal products from Australia along with alumina used in aluminium smelting.

Today’s Economic Data and Events

  • 11:00 UK monthly GDP Oct: forecast -0.1% m/m
  • 11:00 UK industrial production: forecast -0.1% m/m
  • 23:00 US FOMC rate decisions: forecast 5.5%

Fixed Income

  • US Treasuries quickly pared initial gains in response to the November CPI report but overall the moves were relatively moderate as the data came in roughly in line with expectations. Yields on the 2yr UST closed higher by 2bps to 4.7308% while the 10yr yield actually managed to the end the day lower, down 3bps at 4.2006%. Markets continue to edge back expectations of a rate cut in March though only marginally so from Monday’s levels.
  • Bond markets in Europe generally closed stronger overnight with yields on the 10yr bund down 4bps to 2.223% while gilt yields dropped 11bps to 3.96% after wage growth in the UK slowed substantially. Emerging market bonds closed higher overnight as the inflation report kept most market assessments of where rates will be headed unchanged. A wide measure of GCC USD-credit rose overnight.


  • The dollar sold off against most peers overnight as the November inflation report didn’t give the market anything particularly new. EURUSD added 0.27% to settle at 1.0794 while GBPUSD was near unchanged at 1.2563 overnight. USDJPY pulled back some of its recent moves higher, settling lower by 0.5% at 145.45.
  • Commodity currencies were more mixed overnight with USDCAD moving higher at the expense of the loonie and closing at 1.3591. AUDUSD fell 0.14% to 0.6559 while NZDUSD added almost 0.2% to 0.6134.


  • Equity markets took the inflation print in their stride with the Dow Jones up 0.5% and the S&P gaining about the same amount. The NASDAQ rose by 0.7%. European markets were more tentative with both the FTSE and EuroStoxx index closing near unchanged overnight.
  • Asian equity markets have opened mixed in early trade today with the Nikkei adding 0.4% while the Hang Seng has fallen 0.6%.
  • Regional equity markets closed stronger overnight with the Tadawul up 0.1% while DFM added a bit less than 0.1% and the FTSE gaining 0.4%.


  • Oil prices dropped sharply overnight with Brent futures down 3.7% to USD 73.24/b and WTI off by 3.8% to USD 68.61/b as markets respond to signals of further supply gains. Russian shipments from a Black Sea port hit their highest level since July this year while the EIA raised its supply estimate for US oil production in 2023 to 12.93m b/d, up 300k b/d from its prior assessment. Supply growth is set to slow in 2024, however. Market reports from OPEC and the IEA will be released on Wednesday and Thursday respectively.

Written By

Edward Bell Head of Market Economics

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