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Investing.com – The latest reading from the US producer price index indicates that price pressures could ease and inflation could peak, as Fed officials were quick to bring optimism back on the ground, noting that the monetary tightening cycle is nowhere near its peak.
On the other hand, the affirmation of UK autumn expectations contributes to escalating cost-of-living crisis pressures, after the inflation rate rose to its highest level in 41 years, reaching 11, 1% in October.
In Japan, the inflation rate rose to its highest level in 40 years and stabilized above 2% for the seventh consecutive month, and the Bank of Japan adheres to the monetary stimulus policy.
While the weakness in US data is pushing the dollar into decline, and its index hovers around 106 after falling from the 113 level, which gives room for the superiority of its major peers.
Push fit
The decline in US PPI growth in October came as an unexpected surprise to markets, as the index reading recorded a 0.2% month-on-month growth, lower than an estimated 0.4%.
The annual growth rate decreased from 8.4% to 8.0% and the basic producer price index (which excludes food and energy prices) remained stable over the past month, increasing by 0.3% against an expected increase of 0.5% and the producer price index for services fell for the first time since November 2020. Commodity price inflation has eased.
The pace of core PPI also slowed year-on-year to 6.7% from 7.1% and the latest PPI data provides further evidence after lower-than-expected CPI data indicated that US inflation may have reached the peak.
On the consumer side, retail sales came in better than expected, posting the fastest growth rate in eight months, as retail and retail prices (excluding autos and fuel) increased in October by 1 .3%, indicating that the US consumer appears to be in good shape despite the sharp rise in interest rates this year.
Job market
On the other hand, applications for government jobless benefits fell unexpectedly last week and remained near record lows, underscoring the strength of the labor market just as some other parts of the economy are starting to slow down.
Despite the Federal Reserve’s relentless efforts to control the pace of economic growth and curb inflation, employment rates continue to grow at a rapid pace.
The US job market added more jobs than expected last month, and there are still about two vacancies for every American job seeker.
Federal crisis
The latest data could complicate matters for many Fed officials who are pressing for slower rate hikes in the coming months and fresh speculation that central bank policies are about to come to a head with monetary tightening.
Officials say inflation remains unacceptably high and monthly CPI readings need to fall sequentially to ensure price pressures reach levels consistent with the central bank’s 2% target.
Federal paradox
Fed Vice Chair Lael Brainard indicated a preference for a 50bp rate hike early next month, but added that we still have work to do on rate hikes.
While Mary Daly, president of the Federal Reserve Bank of San Francisco, said that while the strategy is to raise prices and then hold out for a while.
He said this did not mean they were about to end their tightening campaign and stressed that stopping interest rate hikes is not an option at the moment, and interest rates appear to be in the 4.75% range – 5.25% are adequate.
St. Louis Fed chairman James Bullard struck a similar tone, calling for rate hikes to be between at least 5% and 5.25%, and the St. Louis Fed chairman noted that the level lower was restrictive enough.
“We’re not quite there yet in terms of stopping rate hikes,” said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, adding he wanted to be convinced that inflation had stopped rising.
The dollar has fallen
The dollar was hit hard after the release of data on weak inflation and the possibility of the Federal Reserve slowing the pace of monetary tightening.
Despite improving Retail Sales, the American hovered around 106 after reaching 113 recently, to cap out the week’s trading, closing at 106.969.
The euro is waking up
The euro benefited from the weakness of the dollar and reached a maximum of 1.04 before falling back to 1.03.
The European Central Bank’s insistence on continuing to raise interest rates as speculation revolves around the Federal Reserve has played a role in keeping the euro strong.
It closed the week’s trading at the 1.0325 level.
yen
The weakness added to the negative impact on the economy, with the Japanese economy unexpectedly contracting by 0.3% in the three months to September (at an annualized rate of 1.2%), contracting for the first time since last year.
In addition to pressures from slowing global growth and high inflation, Japan is facing the challenge of a falling yen, with the yen falling to an all-time low against the dollar, adding to cost-of-living pressures.
However, the recent dollar weakness has led to pressure on the Japanese yen and its stability below the 141 level, and the Japanese yen finished the trading week at the 140.35 level.
Despite mounting price pressures, the Bank of Japan refuses to join the march to raise global interest rates and BoJ Governor Haruhiko Kuroda has stuck to his argument that global raw material costs are half the drivers of price increases, which are temporary.
European guidelines
According to reports, the ECB’s initial discussions are geared towards a 50 basis point rate hike at next month’s meeting, unless there is a sudden acceleration in inflation before then.
Among the reasons cited were the growing risks of recession, the possibility of a decrease in pressure on consumer prices and the possibility that a rise in the deposit rate by 50 basis points to 2% would contribute to approaching the so-called neutral level which stimulates the economy more.
China is beating empty drums
The performance of China’s economy slowed in October on the back of measures taken after an earlier surge in COVID-19 cases disrupted business activities and damaged consumer confidence.
Industrial production growth slowed to 5% from 6.3% a year earlier and retail sales contracted for the first time since May, down 0.5% from a year earlier.
The unemployment rate remained high at 5.5%. October saw a surge in virus cases as authorities tightened checks ahead of the Communist Party Congress and discouraged travel during the week-long public holiday.
Beijing recently took its boldest steps to stabilize the real estate market and reduce the economic burden caused by zero Covid policies, leading to investor optimism.
Inflation in Japan is at its peak in 40 years
Rising global inflation and sharp hikes in interest rates around the world have undermined the post-COVID recovery in the world’s third largest economy.
Nationwide basic CPI growth accelerated in October to the fastest rate since February 1982, rising to 3.6% year-on-year from 3.0% the previous month, after a weaker yen pushed lower high cost of imports and products.
The CPI growth rate remained above the BoJ’s 2% target for the seventh consecutive month.
Gloomy outlook for oil markets
A fleeting wave of optimism sparked by China’s easing of some quarantine restrictions last week faded as it became clear that rising COVID cases would continue to hamper travel.
Weak economic data out of China also reduced the potential for higher oil consumption and further tightening of market conditions.
It continued to decline as investors refocused their attention on concerns about the demand outlook after geopolitical tensions eased.
WTI and the trading mix closed the week below $90 a barrel.
