The strong start to November undergoes a crucial assessment this week as market participants analyse October's inflation data. This information is pivotal for gaining insight into the Federal Reserve's stance regarding possible interest rate increases and the imminent risk of a government shutdown.
What holds particular importance is the October Consumer Price Index (CPI), which is scheduled to be the first reading for the fourth quarter. Investors await this release to ascertain whether inflation has sufficiently tempered, potentially prompting the Fed to recalibrate its tightening trajectory. The forthcoming Tuesday release of the headline CPI number is anticipated to reveal a moderation in inflation last month, a prospect that could buoy equities and align with a more accommodative stance from the Fed.
Wednesday's unveiling of October's retail sales data holds its intrigue, offering a window into consumer resilience amidst escalating interest rates and inflationary pressures. However, early indications suggest potential fissures in spending patterns, signalling the enduring and nuanced impacts of the Federal Reserve's gradual monetary tightening.
Concurrently, Moody's recent downgrade compels a revaluation of the Fed's last tightening cycle. Emphasising America's substantial fiscal deficits and political impasses in Washington as pivotal contributors, Moody's, while maintaining a AAA credit rating, draws attention to the challenges posed by escalating interest rates. The downgrade raises concerns about the US government's creditworthiness, potentially elevating borrowing costs. In response, the Fed may confront the imperative of adjusting its monetary policy to ensure stability and counteract adverse economic repercussions. However, the diminished manoeuvrability in raising rates remains a substantial consideration in this complex interplay between fiscal and monetary policy.
Fullerton Markets Research Team
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