CFIC Introduction
In the case of large fluctuations in data, the "hawk-dove war" within the Fed may be unavoidable, which also brings large volatility to the market.
Original title: [Financial Analysis] United States inflation is heating up more than expected, how will the market interpret it in the future? Xinhua Finance Shanghai, October 11 (Ge Jiaming) On October 10, local time, United States inflation data rose more than expected, and the Fed's interest rate path in November added another variable to push US stocks lower. Data released by the United States Bureau of Labor Statistics on Thursday showed that the United States CPI rose 2.4% year-on-year in September, exceeding expectations of 2.3%; Core CPI rose 3.3% year-on-year, beating expectations and the previous value of 3.2%. United States inflation in August and September continued to exceed expectations, showing that the process of disinflation has been repeated, consistent with the recent improvement in United States economic momentum, but due to the number of first-time applicants announced in the same period for the week ending October 5 rebounded more than expected under the impact of hurricanes, market interest rate cut expectations did not fall but rose. In the case of large fluctuations in data, the "hawk-dove war" within the Fed may be unavoidable, which also brings large volatility to the market.
Is inflation a thorny problem again? First, the continued decline in energy prices in September pushed headline inflation to continue its slowing trend. However, due to the current uncertainty in the Middle East, oil prices may continue to be affected by geopolitics in the future, and large fluctuations may become the norm. Therefore, analysts said that if oil prices jump in the future, the progress made in United States CPI inflation will be twists and turns, prompting the United States to be more "cautious" about the future path of interest rate cuts.
Image source: Huatai Securities Research Report
At the same time, the core CPI, which excludes food and oil prices, was unusually strong in the CPI data and showed signs of rebounding in September. Judging from the specific inflation sub-data, housing inflation may be expected to continue to decline, driving the inflationary pressure on services to continue to ease, but transportation services and medical prices have accelerated. Yi Xun, chief economist of Huatai Securities, told Xinhua Finance that the rebound in core services other than goods and housing that the Fed cares about led to inflation exceeding expectations in September, with a sharp rebound of 0.31% to 0.55% month-on-month growth, and the process of disinflation in United States has been repeated, and the follow-up will pay close attention to the possibility and persistence of the rebound in inflation in United States.
Image source: Huatai Securities Research Report
Repeated inflation, combined with the previous strong non-farm payrolls data, may slow the pace of interest rate cuts by the Federal Reserve. CICC said in the report that the Fed may cut interest rates by 25 basis points in November and will be more cautious about future rate cut guidance. Some analysts believe that the inflationary pressure on transportation services and medical services mainly comes from rising wages, which may become another potential risk to inflation in United States. Differences within the Fed highlighted internal divisions after the release of United States' September CPI data, with speeches by a number of Fed officials highlighting internal divisions. New York Fed President John · Williams, who has a permanent vote in the Federal Open Market Committee (FOMC), said inflation has not yet reached its 2% target, but he is confident that inflation is heading in the right direction. Despite the small setbacks, United States inflation is still trending downward. Indicators of the labor market suggest that labor is unlikely to be a source of price pressures. Chicago Fed ·President Austan Goolsbee also said on the same day that the latest United States inflation data was basically in line with expectations, and the overall trend showed that the inflation level had dropped significantly, and he was not worried that the CPI inflation report for September would be higher than expected. However, Raphael Bostic, president of the Atlanta Fed · a member of this year's voting committee, said that based on the recent data fluctuations, he is absolutely open to whether the Fed should pause interest rate cuts in November. With Bostic's statement, the market expects the probability of the Fed not cutting interest rates in November to rise slightly in the short term. How will the follow-up market be interpreted? CICC believes that United States will still show high volatility and continue the volatile upward trend, but the style will be switched, from broad market growth to value and pro-cyclical, that is, the performance of the Dow may exceed the Nasdaq in the future. Due to the strong internal energy of the economy and the superposition of historically high fiscal deficits, the interest rate cut cycle is more precautionary and front-loaded, specifically, the earnings of the molecular end of the enterprise are expected to benefit more, while the valuation room for upward movement is limited, which is more favorable to the pro-cyclical style. From the perspective of the bond market and the foreign exchange market, the yield on the 10-year US Treasury note rose to 4.11% after the release of the September inflation data, and fell back to 4.06% at the end of the session. The U.S. dollar index also rebounded from around 100-101 to around 102.8. Xiao Jinchuan, co-chief macro analyst of Huaxi Securities, believes that the trend of U.S. bonds and the U.S. dollar is mainly behind the expected retraction of interest rate cuts, and the market pricing the Fed's interest rate cut during the year has dropped from 74.2bp on September 20 to the latest 44.5bp, a retracement of about 30bp. Whether there is a risk of continued upward interest rates in the long-end of U.S. Treasury bonds depends on whether the Fed cuts interest rates from 50bp to 25bp in November-December, which may require the non-farm payrolls and inflation data to continue to exceed expectations, and the risks may be relatively manageable. As for the follow-up trend of the dollar index, in addition to the withdrawal of its own interest rate cut expectations, Xiao Jinchuan said that there are external factors such as the dovish statement of the central bank of Europe and Japan (in addition to the statement of the central bank of Japan, Japan's real wages have also turned negative again). The subsequent trend of the US dollar index may also pay attention to the marginal changes in the fundamentals and monetary policy statements of Europe and Japan.
Source of this article: Xinhua Finance
Author: Ge Jiaming
WeChat editor: Liu Sile
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