15 November 2023
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Inflation eases in US

Daily Outlook 15 November 2023

By Edward Bell

Inflation in the US slowed in October with the headline CPI index rising by 3.2% y/y, its slowest pace since 2021. On a monthly basis, the CPI index recorded no change while core CPI slowed to just 0.2% m/m, slower than market expectations. Inflation is slowing across nearly all segments of the index: services prices ex-housing, so-called supercore CPI, rose by 0.2%. The steady easing in price pressures reinforces our call that the Federal Reserve is done hiking rates and that the impact of tightening will be felt more and more in the economy. Market pricing for a final hike at the December FOMC has now gone to 0 compared with a modest chance being priced in earlier this week.

The second estimate of Eurozone GDP for Q3 confirmed a contraction of 0.1% q/q with major economies like Germany and the Netherlands reporting a drop in activity. On an annual basis, the regional economy still managed to expand by 0.1% y/y, considerably slower than the 0.5% recorded in Q2. 

The ZEW survey of investors in Germany came in stronger than expected with the expectations index rising to 9.8 for November from -1.1 a month earlier. The assessment of current conditions remained highly negative at -79.8 but the improvement in the expectations component suggests that the slump in activity in the middle of 2023 may be the bottom for Germany’s economy.

Japan’s economy shrank more than expected in Q3 with a drop of 0.5% q/q. On an annualized basis, the economy contracted by 2.1%. Business investment dropped last quarter, extending a decline from Q2 this year, while there was a rise in imports that caused net exports to drop by 0.1%. Household spending also declined showing broad weakness in Japan’s economy. The Bank of Japan has been slowly indicating it would normalize policy but the weak performance of the economy may drag out the normalization even further.

Industrial production in China rose to 4.6% y/y in October, a modest increase from a month earlier and marginally faster than markets had been expecting. Fixed asset investment (ytd) was up 2.9% in the 10 months to October, slightly slower than markets had been expecting. Retail sales rose by 7.6% y/y, up from 5.5% a month earlier. China is reportedly considering a CNY 1trn injection into the economy to support affordable housing projects and renovation of villages.

Wage growth in the UK slowed in the three months to September to 7.9% y/y from 8.2% in the prior three month period. The number of payrolled employees in the UK rose by 33k in October compared with a month earlier while the estimate for September was also revised higher to an increase of 32k from a drop of 11k previously. The unemployment rate held steady at 4.2% in the July-September three-month period.

Today’s Economic Data and Events

  • 10:00 SR CPI y/y Oct
  • 11:00 UK CPI October: forecast 4.7%
  • 17:30 US retail sales m/m October: forecast -0.3%

Fixed Income

  • The easing inflation pressures in the US helped US Treasuries soar overnight as markets price out any further rate hikes. Yields on the 2yr UST dropped almost 20bps to 4.836% while the 10yr yield dropped 19bps to 4.473%, its lowest level since September.
  • Egypt is reportedly considering raising funds in the Indian market according to a statement from finance minister Mohamed Maait.


  • The slowdown in US inflation helped to push the dollar sharply lower against all peer currencies as markets price out any potential additional rate hikes. EURUSD jumped by 1.7% to 1.0879 while GPBUSD gained 1.8% to 1.2499. USDJPY also moved in favour of the yen, down 0.9% at 150.37. Growing confidence that the Fed is done with its hiking cycle should allow some modest appreciation for currencies against the dollar though it is unlikely to be a straight line.
  • Commodity currencies fared strongest with AUDUSD up 2% at 0.6507 while NZDUSD rose 2.2% to 0.6008 and USDCAD added 0.8% to 1.3693.


  • Equity markets rose in response to the soft CPI data out of the US. The Dow Jones added 1.4% while the S&P gained 1.9% and the NASDAQ spiked almost 2.4%. European markets were also stronger with the FTSE in the UK up 0.2% while the EuroStoxx index added 1.4%.
  • Asian markets have opened in very strong conditions today with the Nikkei up 1.9% and the Hang Seng rising nearly 2.5%.
  • Local market settled a little softer overnight with the DFM down 0.2% and the ADX holding near unchanged. The Tadawul, by contrast added 0.6%.


  • Oil prices closed near unchanged overnight with Brent futures at USD 82.47/b and WTI at USD 78.26/b. Markets were weaker across product markets along with natural gas prices. Time spreads at the front of the curve in the Brent markets dropped to USD 0.26/b in backwardation while the prompt spread in WTI is holding close to neutral.
  • The IEA revised its demand growth expectation for 2023 up marginally in its November oil market report, forecasting 2.4m b/d of growth. Most of the demand growth will be concentrated in China (up by 1.8m b/d) and the rest of emerging Asia. Demand in advanced economist will be flat. For 2024, the IEA projects a sharp slowdown in demand growth to just 0.93m b/d with an outright contraction in developed economies demand. That stands in sharp contrast to OPEC which expects demand growth of more than 2.2m b/d in 2024.

Written By

Edward Bell Head of Market Economics

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