General Market Analysis – 10/10/24

US Stocks Surge Ahead of Key Inflation Data – Dow Rises 1%

US stock markets rallied yesterday as investors eagerly awaited today’s key inflation report from the US. The Dow Jones surged, closing 1.03% higher, while the S&P 500 and Nasdaq followed suit, gaining 0.71% and 0.60%, respectively. The dollar also strengthened, pushing major currency pairs to levels not seen in several months, with the DXY index rising to 102.88 by the close of New York trading.

US Treasury yields held firm above the critical 4% level, with the 2-year note adding 4 basis points to reach 4.019%, and the benchmark 10-year gaining 3.6 basis points to settle at 4.071%. Oil prices retreated slightly following a stronger-than-expected US inventory report, with Brent crude down 0.8% to $76.58 per barrel and WTI sliding 0.5% to $73.24. Meanwhile, gold continued its decline, dropping 0.5% to finish the day at $2,607.93 per ounce.

Inflation in Focus for FX Traders

Today’s US inflation data has captured the attention of FX traders, with the dollar maintaining its upward momentum. Markets are now pricing in a 79% chance of a 25-basis point rate cut by the Federal Reserve at its November meeting. In recent weeks, the dollar has rebounded sharply into familiar ranges, and traders are looking to today’s CPI report to solidify expectations for lower interest rates heading into next year.

US economic data has consistently exceeded expectations, confirming the economy’s resilience. Today’s CPI release could provide the final piece of the puzzle, potentially reducing dovish expectations for the Federal Reserve in the final quarter. While employment figures have garnered significant attention since the Fed’s 0.5% rate cut in September, traders understand that inflation remains a crucial factor for the Federal Open Market Committee (FOMC). An inflation print on target or slightly above could further boost the Greenback.

US CPI Data at the Centre of Investor Attention

The macroeconomic calendar is relatively light today, with attention firmly fixed on the upcoming New York session and the release of the latest US CPI figures. There is a chance we may see China’s New Loans data during the Asian session, but this is likely to be overshadowed by the fiscal update from Chinese authorities scheduled for the weekend. The European session is expected to be quiet, with the focus remaining on New York.

Analysts are anticipating a modest 0.1% month-on-month rise in the headline CPI figure, with core inflation expected to increase by 0.2%, down slightly from last month’s 0.3% rise. Weekly unemployment claims data will also be released at the same time, but inflation figures are likely to dominate market sentiment for the day.

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