Thursday’s release of US consumer price inflation for September is likely to be the final piece in the Fed’s jumbo-sized jigsaw for its November meeting. Soft data would restart the “pivot” trade which means “risk on” so higher equities and a lower dollar. But sticky, still elevated figures will increase bets that rates will be held higher for longer next year – not a good mix for risk assets. Markets currently assign above an 80% chance of 75bp rate hike in early November. Only a 5% handle in the core annual rate would markedly upset these odds.

The minutes from the September FOMC meeting as well as numerous speeches from Fed officials will also be in focus. This meeting had an updated, relatively hawkish new set of dot plots, though Chair Powell’s press conference was slightly underwhelming in comparison. The tone of deliberations around the dot distribution will be a focus. Markets will also be on the lookout for any suggestions the Fed might slow its rate hike path if it triggered unnecessary market risks.

Bank of England intervention to stem a bond market meltdown and a government U-turn on part of its unfunded tax-cutting plan have brought some calm to UK markets. The coming days will put the recovery in GBP to the test with jobs figures and August GDP.  Weak data could pile the pressure on the currency even though markets price in a 100-basis point November rate hike. We note that Parliament returns in what is sure to be a volatile session as the government tries to push through its spending review. The emergency BoE bond purchases expire on Friday, October 14, which could reveal just how much market nerves have been calmed.

Major risk events of the week

11 October 2022, Tuesday:

–UK Jobs: The jobless rate is expected to increase by a tenth to 3.7% in August. Analysts predict falling participation will reverse due to the cost-of-living crisis as hard-pressed workers go back to employment. Base effects are forecast to bring down the rate of pay growth, while labour market slack is set to become more visible into year-end.  GBP/USD looks vulnerable below 1.1226.

12 October 2022, Wednesday:

–UK GDP: Some prominent City analysts expect the monthly GDP data for August to show a 0.1% m/m contraction with declines across industrial production, manufacturing, and services. This indicates the third quarter will see GDP contract, particularly due to the loss of activity following the mourning period after the Queen’s death.

–FOMC Minutes: We will be watching for any clues on pausing policy normalisation due to market ructions. The divergent views around the dot plots, what is restrictive territory, and the terminal rate will also be of interest.

13 October 2022, Thursday:

–US CPI: The annual headline print is forecast to fall to 8.1% from 8.3%. This will be depressed by the lagged effects of the drop in gasoline prices. But the monthly reading is still seen rising 0.2%, up from the 0.1% in August. The core figure is likely to pick up to 6.5% from 5.9%. This is the last major data before the Fed meeting early next month. Gold will look for support around $1666/81 while resistance sits at $1722.

14 October 2022, Friday:

–US Retail Sales: Analysts expect sales to grow 0.2% m/m, down one-tenth from August. Higher inflation and interest rates are expected to slow demand and consumption growth. Real goods spending is forecast to slide into the new year, though falling gasoline prices may support some consumer activity. The weekly close in US stocks points to more downside with nearby support levels key.