Markets look to US inflation print

The US inflation print for October will be the focus for today with market expectations that the headline CPI number will have slowed to 7.9% y/y from 8.2% y/y recorded in September. Gasoline prices were higher in October than they were in September and may be at risk of rising once again, which may help to keep headline inflation high. The core inflation number, which surprised to the upside last month is also expected to slow to 6.5% y/y from 6.6% previously and market attention will zero in on how core price pressures are faring. Even if the print comes in as expected, we don’t think that it will prevent the Fed from hiking rates by 50bps at the December FOMC but would allow the Fed to temper its pace of monetary tightening going forward. Results from the US mid term elections are still being counted, with the Senate race still on a knife edge and the Democrats having held up better in the House of Representatives than initially expected also.

Bloomberg has reported that Qatar’s sovereign wealth fund has deposited USD 1bn at Egypt’s central bank, ahead of planned acquisitions in the country as Egypt gears up to sell stakes in major firms. This follows USD 3bn deposited by the Gulf state earlier this year and is illustrative of the key role the GCC is playing in supporting Egypt through the financial strains of this year, along now with the IMF after a new deal garnered staff-level assurance last month. According to CBE data released yesterday, Egypt’s net reserves rose to USD 31.6bn in October, up from USD 31.4bn the previous month. While reserves are still some 20% down y/y, they have stabilised and ticked up marginally in recent months. CPI inflation data is due today.

Today’s Economic Data and Events

• 17:30 US CPI y/y October: forecast 7.9%
• 17:30 US Initial jobless claims Nov 5: forecast 220k
• Egypt CPI inflation, % y/y, October

Fixed Income

• The UST curve steepened as 2yr UST yields dropped substantially overnight, down 7bps to 4.5795%, while the 10yr yield dropped just 3bps to 4.0923%. Stronger moves in European bond look to have been behind the gains in Treasuries with bund yields down 11bps to 2.162% and Italian 10yr yield falling 10bps to 4.269%.
• Credit markets were more mixed with an index of high yield bonds falling 0.3% while EM-USD denominated debt rose by 0.2%.

FX

• The dollar recovered after several days of losses with the DXY index up 0.8%. EURUSD provided a bulk of the improvement for the dollar, with the pair closing down 0.6% but still staying above parity at 1.011. GBPUSD dropped more substantially, down 1.6% at 1.1358, while USDJPY added 0.5% to 146.47.
• Commodity currencies were weaker as a rule with USDCAD adding 0.7% to 1.3526 and AUDUSD down 1.2% to 0.6431 and NZDUSD dropping by 1.2% to 0.5883.

Equities

• Risk-on sentiment waned sharply yesterday ahead of the US CPI print due this afternoon. In the US, the NASDAQ lost -2.5% on the day, followed by the S&P 500 which closed down -2.1% and the Dow Jones which lost -2.0%.
• Losses were more muted in Europe where the DAX and the CAC closed -0.2% lower.
• Locally, the DFM closed flat while the ADX added 0.2%. Egypt’s EGX 30 added 4.6% yesterday.

Commodities

• Oil prices fell heavily a second day running with Brent futures down 2.8% at USD 92.65/b and WTI falling by almost 3.5% to USD 85.83/b. EIA data showed a build in US commercial crude inventories of nearly 4m bbl last week while gasoline stockpiles dropped. US oil production recovered somewhat, up 200k b/d to 12.1m b/d.

Click here for charts and tables