US EARLY MORNING: US equity futures are treading water ahead of inflation data due today

US PRE-MARKETS: US equity futures are flat, Treasury yields are a touch lower, the Dollar Index is flat; crude benchmarks are a little higher. Traders are awaiting the key US CPI data for October, which is expected to show a cooling in the headline rate of annual inflation, though the core measure of annual inflation is expected to be unchanged (our preview is below). The data will help set expectations for the Fed's future rate trajectory. There is also a heavy amount of Fedspeak on the slate today, with comments due from Vice Chairs Jefferson and Barr, while the NY Fed's Williams is also due to speak. The monthly fund manager survey from Bank of America has been released, and says investors remain cautious on macro, but have turned bullish on interest rates. Most surveyed (74%) see a soft landing or no landing for the US economy, with most (76%) of the view that the Fed has concluded its hiking cycle; the survey finds that investors expect lower bond yield in one years’ time (61% - the most on record, BofA says). In terms of asset allocation, BofA says investors are the most overweight bonds since the financial crisis, while investors have also moved overweight equities for the first time since April 2022, with cash balances declining to the lowest since November 2021.

PREVIEW - US CPI (13:30GMT/08:30EST): Consumer prices are expected to rise +0.1% M/M in October (prev. +0.4%), with the annual rate seen easing to 3.3% Y/Y (prev. 3.7%). Core CPI is seen rising +0.3% M/M in October, matching the rate of growth seen in September, while the annual rate of core inflation is expected to be unchanged at 4.1% Y/Y. The October data is likely to have been driven by stable energy prices and possible declines in vehicle prices, as high borrowing costs reduce consumer demand. JPM explains that, if the consensus view is accurate, it would be the softest monthly change since May, and would likely be a function of a 2.4% decline in energy prices in October (which itself would be the first monthly decline since May). Analysts will be mindful of the impact of medical expenses; WSJ explains that in October, the BLS incorporates new data on the profitability of health insurers. Medical care has been a drag on CPI in the last year, but will contribute to core CPI for at least the next 6 months; Goldman Sachs estimates this will add 4bps to core CPI in October. The PCE inflation data (the Fed's preferred gauge) is calculated slightly differently, WSJ notes. The University of Michigan’s prelim sentiment data for November showed consumer one-year inflation expectations ticking up for a second straight month, to a seven-month high (at 4.4%), while the 5-10yr gauge rose to the highest since March 2011 at 3.2% (from 3.0% in October). However, the NY Fed's own Survey of Consumer Expectations saw the 1yr ahead inflation expectation ease to 3.6% from 3.7%; while the 3yr view was unchanged at 3.0%; the 5yr view eased a little to 2.7% from 2.8%. The incoming inflation data will form a key part of how the Fed proceeds with policy; Chair Powell last week endorsed a cautious approach to policy. He said officials were committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time, and the FOMC is not yet confident that it has achieved such a stance, adding that if officials feel that it is appropriate to tighten policy further, they would not hesitate to do so, noting that ongoing progress toward target was not assured, and inflation readings have recently given “a few head fakes.” Powell said the Fed would continue to “move carefully” on policy so that it can “address both the risk of being misled by a few good months of data, and the risk of overtightening.”

TODAY’S AGENDA:

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14 Nov 2023 - 09:30- EquitiesData- Source: Newsquawk

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