It’s been a rocky few weeks for financial markets as the Fed’s long-held message about keeping interest rates higher-for-longer to combat inflation and a resilient economy has permeated into price action. We’ve seen Treasury yields spike higher to multi-year highs, which have fuelled a dollar rally, while gold and stock markets have struggled with the megacap tech giants under pressure.

The key economic release this week is the US inflation report on Thursday where investors will be highly attuned to any adverse dynamics in the data following that sell-off in global bond markets in recent weeks. The report will be assessed together with last week’s surprisingly strong jobs data and will be the last CPI release ahead of the next FOMC rate decision on November 1. High energy and food prices could impact on the headline numbers while slowing housing cost and rent may potentially have a cooling effect on the core metrics.

Soft data confirming the ongoing disinflationary process should cement markets expectations that the Fed will hold its rate range at 5 to 5.25% at its penultimate meeting and get markets believing the Fed’s work is now done and they have seen the peak rate in Fed Funds. There is only currently around a 40% chance of a quarter point increase by year end. But any acceleration in price pressures, and especially the Fed’s favoured super-core measure of CPI could force officials to ready themselves for one more hike, as seen in the most recent median dot plot of rate projections. This would likely see the dollar challenge recent highs again and gold recent lows.

Finally, earnings season is upon us again and will kick off with results from several major US banks on Friday, including JPMorgan, Citibank and Wells Fargo. This follows a 5% decline for the S&P 500 since the end of August and equity indices under pressure amid rampant Treasury yields. JP Morgan has outperformed most of its peers after benefiting from the March regional banking crisis and turmoil in the rates markets. The flips side has seen Citibank struggle with it being one of the least profitable US banks. Meanwhile, Wells Fargo is generally considered a bellwether of the US consumer as it is one of the largest US retail banks and mortgage lenders. That means there will be a focus on its bad loan coverage.

Major data releases of the week:

11 October 2023, Wednesday

–FOMC Minutes: Investors will focus on the chance of more rate hikes and tightening in the face of resilient economic data and jobs market, as bond yields surge. Any hints from officials on their take about the balance of growth and inflation will be watched.

12 October 2023, Thursday

–UK GDP: Consensus forecasts see the August monthly print at 0.2%, rebounding from a 0.5% contraction seen in the prior month. The data will be checked to see how strong the economy is as high borrowing costs and inflation increasingly act as headwinds.

–US CPI: Expectations are for the headline rate to rise 3.6% in September. That would mark a small decline from 3.7% in August due to a slower increase in energy prices. The core figure is expected to be steady at 0.3%, matching the prior month. 

13 October 2023, Friday

–China CPI: Economists forecast a one-tenth increase to 0.2% in September. That comes after the economy climbed out of deflation in August with a rise of 0.1%. Rising oil prices and government stimulus measures may cause some upside risks to the data.