Sticky US inflation print to force the Fed’s hand
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Local and global equity markets largely trended sideways this week though not without volatility.
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The Aussie dollar fell to a two and half year low against the US dollar, with interest rate differentials between Australia and the US expected to widen and risk-off sentiment also not helping the Aussie.
ECONOMICS
- Australian consumer sentiment fell by 0.9% to 83.7 points, a very low level consistent with major economic dislocations. Interestingly, respondents surveyed prior to the RBA board meeting recorded a consumer sentiment reading that would’ve meant a very large 8.3% decline. The unemployment expectations index spiked higher by 11.7%, usually a good 6-month leading indicator for the unemployment rate.
- Australian business confidence also fell but business conditions rose driven by strong trading. Price pressures are persisting, with input and final prices elevated, though the pace of growth has likely peaked. Demand for employees remains very high whilst labour costs increased at a slower pace versus the previous quarter.
- US headline and core inflation printed stronger than consensus estimates with markets confirming their expectations of a 0.75% rate rise at the November meeting. Annual inflation fell from 8.3% to 8.2%. The core inflation measure (excluding food and energy) rose by 0.6% (vs 0.4% expected), whilst annual growth was 6.6% which is the highest level since August 1982.
- US consumer inflation expectations eased from 5.7% to 5.4% in September. The measure of chain store sales was up 8.3% on a year ago, down from 12.3% annual gain in the prior week.
- The Bank of England continued to stabilise the UK bond market stepping up measures to provide support, increasing the size of its buying operations and launching a longer- term facility to ease liquidity pressures.
- The UK economy unexpectedly shrank in August for the first time in two months. The 0.3% drop means Britain will be lucky to avoid a downturn in the third quarter.
POLITICS
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Geopolitical tensions rose further, following the sabotage of the Nord Stream pipeline, with an explosion tearing through Russia’s bridge across the Kerch Strait to Crimea. The car bomb killed at least three people and severely damaged the bridge’s structure. The bridge is a key artery for shipping. As expected, Putin retaliated swiftly with a barrage of deadly missile strikes on cities across Ukraine, including Kyiv.
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The US senate foreign relations chair urged a freeze on all US co-operation with Saudi Arabia, saying the kingdom’s backing of OPEC+ oil production cuts is helping Russia finance its invasion of Ukraine. The Saudis didn’t take too nicely to the accusation, throwing the Biden administration under a bus, by disclosing that they had asked the Saudis to hold off on their decision until after the US mid-term elections.
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The French government played their hand this week “ordering” workers back to work at an Exxon Mobil plant before “telling” Total Energies to raise wages, as striking workers hit the country’s petrol supplies dragging on for a 16th day. The strikes have reduced France’s petrol output by over 60% and left one in three petrol stations struggling for supplies