Global markets are entering a week full of economic data that may redraw their expectations regarding interest rates, with US inflation topping investors’ agenda, at a time when it is increasingly important to know whether price pressures have begun to decline or whether the continued strength of economic activity and the labor market will give the Federal Reserve additional justifications to continue monetary tightening.
US consumer price data for October, scheduled to be released on Tuesday, is of particular importance as it is the last major inflation reading before the central bank meeting in December, on which markets are increasingly betting on a new rate hike. It will be followed on Friday by producer price data, which will provide an additional indication of the extent of the pressures facing companies, at a time when energy and commodity costs continue to influence price expectations.
This data comes after a stronger-than-expected report on the US labor market, which showed the addition of 165,000 jobs in October, exceeding all expectations, which enhances consumers’ ability to continue spending and gives the Federal Reserve more space to focus on combating inflation.
A decisive test for the Fed’s bets
A survey conducted by Bloomberg indicates that the US consumer price index rose by 0.3 percent during October, compared to an increase of 0.6 percent in the previous month, which is the largest since April. Core inflation, which excludes food and energy, is also expected to slow to 0.2 percent, the slowest monthly increase in three months.
On the other hand, economists polled by ING Bank expect the general and fundamental indices to rise by 0.3 percent each on a monthly basis, which reflects the continuing state of uncertainty about the pace of decline in price pressures.
Bloomberg Economics estimates indicate that a slowdown in the prices of goods and services may support a decline in inflation, with expectations of a slower increase in the prices of used cars and consumer electronics, in addition to a moderate rise in the costs of services and rents.
But the expected reading will not be the only factor in determining the course of monetary policy. Markets are also awaiting producer price data on Friday, amid expectations that it will rise by 6.6 percent on an annual basis, the fastest rate in about four years, reflecting continued price pressures on companies.
Money markets currently place the probability of the Federal Reserve raising interest rates by a quarter of a percentage point in December at about 75 percent, according to LSEG data. Analysts believe that a higher-than-expected inflation reading, along with continued strength in the labor market, may make the new increase closer to certainty before the central bank's meeting on December 9.
In addition to price data, markets are awaiting weekly unemployment aid claims and existing home sales on Thursday, as well as statements from a number of Federal Reserve officials in search of additional signals regarding their monetary trends.
China is between production pressures and weak demand
In Asia, attention is turning to Chinese inflation and trade data, searching for indications of the ability of the world's second-largest economy to achieve a balance between improved industrial activity and weak domestic demand.
Expectations indicate that consumer prices in China will rise by 0.8 percent on an annual basis during October, while producer price inflation is expected to accelerate to about 5.3 to 5.4 percent, the highest level since June 2022, according to estimates by Bloomberg and ING.
This discrepancy reflects continued pressures on the production side, driven by rising supply costs, the effects of war in the Middle East, and the investment boom in artificial intelligence, in contrast to continued weakness in domestic demand in broad sectors of the economy.
Markets are also awaiting Chinese trade data on Tuesday, to see whether export growth is still able to support economic activity in light of limited domestic consumption. The movements of the yuan and Chinese government bond yields will also remain subject to follow-up, after the central bank intervened to slow the pace of the currency's rise.
In India, annual inflation is expected to rise to 6 percent in October, compared to 5.5 percent in September, with food prices rising, especially grains, vegetable oils and vegetables. This reading may reinforce expectations of a new rate hike in December, if inflation exceeds the upper limit of the central bank’s target range.
Britain and the Eurozone under the growth microscope
In Europe, attention is focused on British GDP data for the third quarter, scheduled to be released Thursday, which will provide an indication of the economy's ability to continue growth despite rising energy and borrowing costs.
Estimates of economists surveyed by Bloomberg indicate that the British economy grew by 0.7 percent during the third quarter, which is the strongest quarterly performance in more than two years. The data comes after the Bank of England's decision to raise interest rates by a quarter of a percentage point to 4 percent, and its warning of the possibility of the need for additional increases if inflationary pressures continue.
British industrial production and trade data will also be released on Thursday, while markets await statements from a number of central bank officials in search of signals about the next steps.
As for the euro zone, the preliminary estimate of gross domestic product during the third quarter will be issued on Friday, along with the second reading of the data, while the rest of the indicators are distributed between German trade data, Italian industrial production, and final inflation readings in Germany and France.
In Canada, the markets are awaiting Tuesday the minutes of the Bank of Canada's last meeting, during which it raised the interest rate by a quarter of a percentage point to 2.5 percent, searching for indications about the possibility of continuing the hike in December, despite the weakness of recent jobs data.
Monetary decisions and data from other economies
In Japan, investors are awaiting a summary of the opinions of members of the Bank of Japan regarding the October meeting, in addition to household spending data, and the statements of Monetary Policy Board member Toichiro Asaka on Thursday, searching for signals regarding the timing of any new interest rate increase, after the bank indicated that core inflation has reached its target of 2 percent.
In Latin America, attention is turning to inflation data in Mexico, Colombia and Brazil, with expectations of rising prices in the three countries, which may further complicate central bank decisions. The minutes of the last meeting of the Central Bank were also issued in Brazil, which kept interest rates unchanged, contrary to expectations of a reduction.
The agenda also includes GDP data for the Philippines, trade in Taiwan, as well as consumer and business confidence indicators in Australia.
While investors' compass is focused on US inflation as the factor that most influences global monetary policy expectations, the divergence of indicators between the major economies will keep the markets facing a delicate equation: a possible slowdown in some price readings, versus continued production pressures and the strength of economic activity in other markets, making the path of interest rates during the coming weeks dependent on the ability of the data to resolve these conflicting signals.
