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Highlights
- US CPI data could influence November market trends.
- The US Fed cut rates by 50bps recently.
- Analysts expect US CPI to show a 2.3% decrease for September.
The release of tonight’s US Consumer Price Index (CPI) data is poised to play a crucial role in setting the tone for November, particularly for the stock market. With the US Federal Reserve recently cutting interest rates by 50 basis points (bps), all eyes are on how the data will influence the market's outlook.
Labor Market Strength vs. Rate Cut Timing
Recent data showed that the US labor market remains unexpectedly strong, raising questions about whether the Federal Reserve's rate cut was premature. Some view this as a signal that no additional rate cuts may come this year, while others are hopeful that the economy is on track for a so-called "soft landing."
CPI Data as a Market Indicator
The upcoming CPI report could be interpreted in two ways. If inflation comes in lower than expected, it could validate the Fed's recent rate cut, signaling that everything is under control. In that case, November could shape up to be a strong month for stocks, as November typically performs well historically on Wall Street, which often influences markets like the ASX (Australian Stock Exchange).
However, if the CPI data reveals inflation is running hotter than anticipated, it might cast doubt on the potential for further rate cuts in the near future. While this scenario may not be enough to disrupt a potential year-end rally, any significant inflationary surprise could cool market enthusiasm.
External Factors Impacting Inflation
Several external factors are also at play in shaping inflation trends. Brent Crude prices have risen in recent weeks, driven by geopolitical tensions in the Middle East. While core inflation figures often exclude energy prices, these increases can still influence broader inflation expectations. Though it’s uncertain whether this will show up in the current CPI release, a sustained rise in oil prices could have longer-term effects.
Housing inflation, while slowing, remains another critical factor. Though this is a more significant issue for Australia’s economic landscape, the trends mirror those seen in the US, where inflation is generally on a downward trajectory.
What Analysts Are Expecting
The good news is that most economic forecasts suggest a decrease in US CPI. FactSet Insight reports that of 17 forecasts from analysts and economic institutions, the median expectation is for inflation to drop to 2.3% in September, down from 2.5% in August.
This anticipated decline, if accurate, could provide some relief to markets and reinforce the belief that inflation is under control, supporting a positive outlook for the remainder of the year.
