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A steep uptick in U.S. bond yields alarmed investors ahead of important inflation data that may affect the rate of Federal Reserve policy easing, which caused Asian equities to fall on Wednesday. As the market reopened following the Veterans Day holiday, short-term Treasury rates surged overnight to their highest level since late July, pushing the U.S. dollar to a three-month high against the yen in the most recent session. Since Donald Trump was reelected to the White House last week, bond rates have risen on the belief that higher tariffs and lower taxes will boost government borrowing and the fiscal deficit. Markets also believe that Trump’s suggested policies will increase inflation and possibly obstruct the Fed’s efforts to cut interest rates. All of this is still a part of the Trump trade, which is fundamentally about increasing deficit spending. The battle between stocks and bonds eventually shifts market sentiment, though, as higher risk-free rates limit valuations, as has been demonstrated in previous market booms, with the Trump trade poster child Bitcoin retreating frm a test of 90k overnight, although many market participants view this pause as one that will refresh upside momentum. The forecast for China, a major customer that will be hardest hit by Trump’s promised trade tariffs, caused commodities to decline generally. Beijing’s stimulus initiatives have not inspired much hope for an economic recovery thus far. Both Hong Kong’s Hang Seng and a subindex of mainland Chinese real estate equities fell more than 1%. The blue chips from China were flat. Both South Korea’s Kospi and Japan’s Nikkei saw declines.The main macro driver today will likely be US CPI; core will likely remain at 3.3% year over year, while headline rate is anticipated to increase 0.2 percentage points to 2.6%. Similar to yesterday’s UK data, which showed that it counted for less this time since the outlook had changed due to the Budget, this week’s typically important US data release will also reveal nothing about the future after a Trump election victory based on October inflation figures. Even though subsequent changes in political decisions must be given more weight in the outlook, this extremely near-term data may still have some influence on the December Fed decision. It is generally anticipated that the headline rate for the October CPI release would increase from 2.4% year over year to 2.6% year over year. This comes after worries over the Middle East scenario caused energy prices to rise in the earlier part of the month. Given that this increase was only temporary, any October inflation bump could be reversed in November. An upside surprise here could raise more doubts about the likelihood of a rate drop in December, as the core rate is generally predicted to remain at 3.3% year over year. Disinflation has been fuelled by the core basket’s regularly fluctuating prices; the “stickier” price components continue to exhibit more obstinate inflation rates.
Overnight Newswire Updates of Note
(Sourced from reliable financial news outlets)
FX Options Expiries For 10am New York Cut (1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
CFTC Data As Of 8/11/24
Technical & Trade ViewsSP500 Bullish Above Bearish Below 5960
EURUSD Bullish Above Bearish Below 1.0810
GBPUSD Bullish Above Bearish Below 1.3050
USDJPY Bullish Above Bearish Below 152.30
XAUUSD Bullish Above Bearish Below 2600
BTCUSD Bullish Above Bearish Below 84500
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