<p class="MsoNormal">UPCOMING
EVENTS:</p><p class="MsoNormal">Wednesday:
UK CPI.</p><p class="MsoNormal">Friday:
Japanese CPI.</p><p class="MsoNormal">The last
week we got again a CPI report beating forecasts and inflation expectations in
the UMich Survey rising. This of course is far from what the Fed wants to see
at this point, and it bodes poorly for the markets going forward. After an initial
dip on the CPI release, we saw an incredible “squeeze” which had no reasons
whatsoever. The day after though the market started to fade the odd reaction to
CPI and extended as UMich Survey indicated rising inflation expectations and
Fed members kept their hawkish stance with Bullard touting a higher year end
rate which would translate in a 75 bps rate increase in November and December. </p><p class="MsoNormal">This week
there’s nothing on the calendar that could change what we saw the last week and
it’s the last week when we will get some Fedspeak before the blackout period
starts on Saturday. So, we will pretty much trade into the next FOMC meeting knowing
that there’s much more probability of a more hawkish Fed than that of a Fed
throwing the markets a bone (which has been market’s illusion anyway). The Fed
wants slower growth, higher unemployment, and tighter financial conditions.
Don’t fight it. The US Dollar is still the best place to be in the major
currencies space.</p><p class="MsoNormal">On
Wednesday, we will get the latest UK CPI report, which is expected to climb to
10.1% on the Y/Y figure from the prior 9.9% and the Core data to rise to 6.4%
from the prior 6.3%. The report is not expected to change the expectations for
a big BoE rate hike (75 or 100 bps) at the November meeting as Bank of England
Governor Bailey indicated at the International Monetary Fund event in
Washington. Their previous disappointing hike at the September meeting was one
of the reasons for the GBP fall which of course got exacerbated by the fiscal
package announcement. The markets want to see clear commitment in inflation
fighting as this is the time to go big or go home. </p><p class="MsoNormal">On Friday,
we will see the latest Japanese inflation report which is expected to climb to
3.1% for the Y/Y figure from the prior 3% and to 2% from the prior 1.6% for the
ex-Food and Energy data. The inflation picture in Japan is very different from
its Western peers and it’s unlikely to trigger a response from the BoJ (as it
has already signalled) at their next meeting in November although there’s a
growing expectation that the BoJ sooner or later will have to fold. </p><p class="MsoNormal">This article
was written by Giuseppe Dellamotta.</p>
This article was written by ForexLive at forexlive.com.
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