Markets
- US CPI inflation printed exactly as expected with both the headline (0.4% M/M & 3.1% Y/Y) and core gauge (0.3% M/M & 3.1% Y/Y) matching consensus. Energy price increases showed up in the data but the figures suggest contained pass-through effects to the broader consumption basket, something that was already apparent in previous releases as well. Food inflation printed at a punchy 0.4% M/M but the Y/Y figure declined from 3% to 2.9%. New and used car prices increased for a second straight month with new vehicle prices up for the first time since March. Shelter costs, the biggest input in the CPI-basket, rose 0.3% M/M (3.3% Y/Y, lowest since Nov 2021). All in all, a Goldilocks CPI reading which further cemented market expectations for a 25 bps rate cut at next week’s FOMC meeting (fully priced in) while a similar follow-up move in December is more than 90% discounted. That’s even as Fed Chair Powell at the time of the CPI release said in a speech that the Fed will proceed cautiously on future rate decisions given uncertainty surrounding the balance sheet and reserve levels. He hinted that QT could soon come to an end, probably as soon as next week. Core bond yields barely reacted to the news with changes in the US a tad softer across the curve (up to -3bps in the 10-yr). German yields were little changed as well (up to +1.4 bps in the 30-yr). Equities built further on Tuesday’s gains with main US indices adding up to 0.6% (Nasdaq). European markets were more mixed, EuroStoxx50 up 0.4%, DAX down 0.1%. The US dollar ceded some ground following the CPI figures and Powell’s remarks, in a shift away from the broader risk-off, safe-haven dollar buying that characterized trading earlier this week. EUR/USD rebounds from the 1.1538 YtD low to currently 1.16. USD/JPY eases from the 162+ area to 161.3. Gold recoups a small part of Tuesday’s massive losses, up 1% to $3980/ounce.
News & Views
- The IMF’s World Economic Outlook published this week shows that global public debt is expected to exceed 100% of GDP by 2029, a level not seen since the end of World War II. The Fund warned that fiscal risks have become more acute amid higher borrowing costs, slower potential growth and ageing populations in advanced economies. It called on governments to rebuild fiscal buffers while growth conditions remain supportive, warning that delaying consolidation raises the risk of a disorderly adjustment later. The IMF singled out the US, China, France, Italy and the UK as countries where debt dynamics warrant particular attention.
- Japan’s core machinery orders rose 4.4% M/M in August, beating the 1.8% consensus estimate and reversing a 4.6% decline in July. The Y/Y-figure accelerated to 8.9% from 3.2%, pointing to resilient capital expenditure plans despite elevated uncertainty around trade policy and the yen’s recent volatility. Orders from manufacturers rose 6.2% M/M while non-manufacturing orders (ex. shipping/power utilities) increased 3.1%. The Cabinet Office maintained its assessment that machinery orders are “showing signs of picking up,” unchanged from the previous month.
 and core gauge (0.3% M/M & 3.1% Y/Y) matching consensus. Energy price increases showed up in the data but the figures suggest contained pass-through effects to the broader consumption basket, something that was already apparent in previous releases as well.){kind=link}