Global Markets Await U.S. CPI Data Amidst Cautious Optimism; China’s Stocks Boosted by Sovereign Wealth Fund Moves

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In the current financial landscape, December S&P 500 futures are up +0.43%, and December Nasdaq 100 E-Mini futures are up +0.46%. These gains come as U.S. Treasury yields continue to fall, and market participants are eagerly awaiting a crucial U.S. consumer inflation report.

The minutes of the Federal Open Market Committee’s (FOMC) September 19-20 meeting reveal that most Federal Reserve policymakers believe it’s “appropriate” to implement one more rate hike and emphasize the importance of maintaining higher interest rates due to persistently elevated inflation, well above the central bank’s 2% target. Some participants have also argued for a shift in the focus of monetary policy decisions from “how high” to raise rates to “how long” to hold rates at restrictive levels. According to the FOMC minutes, “a majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted.”

In Wednesday’s trading session, major Wall Street averages ended on a positive note. Alphabet Inc. and Meta Platforms Inc. both rose over +1% following reports suggesting these tech giants had received an internal draft proposing a more business-friendly stance on artificial intelligence from Southeast Asian countries. Amgen Inc. also had a good day, with its stock climbing more than +4% after Leerink Partners upgraded it to Outperform from Market Perform, setting a price target of $318. On the flip side, Exxon Mobil Corp saw a -3% slide in its stock after agreeing to buy Pioneer Natural Resources in an all-stock deal valued at $59.5 billion. Additionally, shares of dialysis companies took a hit after Novo Nordisk announced it was ending a kidney failure study of its GLP-1 drug Ozempic early due to efficacy data, with DaVita falling more than -16% and Baxter International plunging over -12%.

Economic data released on Wednesday showed that U.S. Producer Price Index (PPI) rose +0.5% month-over-month (m/m) and +2.2% year-over-year (y/y) in September, exceeding the expected figures of +0.3% m/m and +1.6% y/y. Additionally, U.S. Core PPI for September rose +0.3% m/m and +2.7% y/y, stronger than expectations of +0.2% m/m and +2.3% y/y.

Meanwhile, Fed Governor Christopher Waller stated that the U.S. central bank could “watch and see” what happens before making additional decisions on interest rates, particularly as financial markets tighten. Atlanta Fed President Raphael Bostic expressed a more cautious view, suggesting that the Fed should refrain from further interest rate hikes due to several indicators pointing towards a slowing economy. However, Bostic noted that the Fed would “need to do more” if inflation stalls or goes in the other direction.

U.S. rate futures have priced in an 8.6% probability of a 25 basis point rate increase at the November FOMC meeting and a 26.0% chance of a 25 basis point rate hike at the December FOMC meeting.

Today, the focus is squarely on the U.S. consumer inflation report, which is expected to be released shortly. Economists, on average, forecast that September U.S. Consumer Price Index (CPI) will come in at +0.3% m/m and +3.6% y/y, compared to the previous values of +0.6% m/m and +3.7% y/y. This report is particularly crucial as it’s the last CPI reading before the next FOMC decision on November 1st and could significantly impact markets that are currently pricing in minimal chances of a rate hike at that meeting.

Investors will also pay close attention to U.S. Core CPI data, with economists anticipating Core CPI to be +0.3% m/m and +4.1% y/y in September, compared to the previous figures of +0.3% m/m and +4.3% y/y.

U.S. Initial Jobless Claims data will be closely watched today as well. Economists foresee this figure coming in at 210K, slightly higher than the 207K reported last week.

U.S. Crude Oil Inventories data is also on the docket today, with economists estimating this figure to be +0.492M, compared to last week’s value of -2.224M.

In the bond markets, United States 10-year rates are at 4.560%, down -0.76%.

Turning to European markets, Euro Stoxx 50 futures are up +0.40% as investors digest solid U.K. growth numbers and await the release of U.S. CPI data for monetary policy clues. The gains in energy and media stocks are leading the overall market higher. Data from the Office for National Statistics shows that the U.K. economy rebounded moderately in August, primarily attributed to growth in the services sector. In corporate news, Publicis Groupe Sa climbed over +4% after the world’s largest advertising group boosted its 2023 sales and margin forecasts.

In the UK, economic data released today included August GDP at +0.2% m/m and +0.5% y/y, Industrial Production at -0.7% m/m and +1.3% y/y, Manufacturing Production at -0.8% m/m and +2.8% y/y, and Monthly GDP 3M/3M Change at +0.3%. These figures largely met expectations.

Asian stock markets settled in the green today. China’s Shanghai Composite Index closed up +0.94%, and Japan’s Nikkei 225 Stock Index closed up +1.75%.

China’s Shanghai Composite closed higher as Chinese sovereign wealth fund Central Huijin Investment increased its stake in the nation’s largest banks, a move aimed at boosting investor confidence and stabilizing the stock market. Shares of major Chinese banks, including the Industrial & Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China, along with other lenders, advanced in mainland and Hong Kong trading. On the regulatory front, China issued a notice forbidding domestic brokerages and their overseas units from accepting new clients from the mainland for offshore trading, aimed at curbing capital outflows. Investors are now keenly awaiting China’s trade data for September, scheduled for release on Friday.

Japan’s Nikkei 225 Stock Index closed sharply higher as investors continued to buy undervalued stocks, with chip-related stocks leading the rally. Japan’s core machinery orders declined for a second consecutive month in August, indicating concerns about a global economic slowdown and China’s uncertain recovery, which may be dampening companies’ willingness to make new investments. Bank of Japan board member Asahi Noguchi reaffirmed the central bank’s stance of “patient monetary easing.” In corporate news, chip-related stocks climbed after Samsung Electronics reported improved earnings, with Tokyo Electron Ltd, Advantest Corp, and Renesas Electronics Corp gaining in value. The Nikkei Volatility also closed up +0.05% to 20.68.

In Japan, September PPI was -0.3% m/m and +2.0% y/y, weaker than expected, and August Core Machinery Orders came in at -0.5% m/m and -7.