US Core CPI Data Release: What to Expect and How It Could Impact the Markets

Upcoming US Core CPI Data: Key Insights and Market Implications

As the financial world awaits the release of the US Consumer Price Index (CPI) data for October, scheduled for Wednesday, November 13, 2024, at 8:30 a.m. ET, the focus is sharply on the core CPI figures. Here’s a detailed analysis of what to expect and how this data could influence the markets.

Expected CPI Figures

The October CPI data is anticipated to show a continuation of the inflationary trends observed in recent months. Here are the key expectations:

• Annual Headline CPI: The headline CPI is forecasted to rise to 2.6% year-over-year (YoY), slightly higher than the 2.4% increase reported in September[1][3].
• Annual Core CPI: The core CPI, which excludes volatile food and energy prices, is expected to remain steady at 3.3% YoY. This would mark the third consecutive month with a core CPI reading of 3.3%[1][3].
• Monthly CPI and Core CPI: On a month-over-month (MoM) basis, the CPI is forecast to rise by 0.2%, while the core CPI is expected to increase by 0.3%[1][3].

Market Implications

The upcoming CPI data holds significant implications for the financial markets, particularly for the US Dollar (USD) and the Federal Reserve’s (Fed) interest rate outlook.

Interest Rate Outlook

The Fed’s decision on interest rates is heavily influenced by inflation data. With core CPI expected to remain at 3.3%, which is above the Fed’s target of 2%, there is a reduced likelihood of an immediate rate cut. Markets are currently pricing in a 67% probability of a 25 basis point rate cut in December, down from about 80% earlier in the month. If the CPI data comes in hotter than expected, this probability could further decrease, as it would suggest that the Fed might maintain or even increase interest rates to combat higher inflation[1].

Currency Impact

Higher inflation typically leads to higher interest rates, which can attract global capital inflows and strengthen the currency. Therefore, if the CPI data aligns with or exceeds expectations, it could support the USD. Conversely, a surprise drop in inflation could lead to a USD sell-off as markets would anticipate a more aggressive Fed easing cycle[1].

Economic Context

The recent labor market data has also played a crucial role in shaping market expectations. The Nonfarm Payrolls (NFP) report for October showed a modest increase of 12,000 jobs, and the Unemployment Rate remained steady at 4.1%. Additionally, wage inflation rose to 4% over the year in October, up from 3.9% in September. These indicators suggest that the labor market, while not booming, is still robust enough to support inflationary pressures[1].

Potential Risks and Upside

Bank of America economists have highlighted several potential sources of upside inflation risk, including pro-growth fiscal policies, tariffs, and tighter immigration policies. These factors could contribute to higher inflation in the coming years, which would slow or halt any potential Fed rate cuts[3].

Trading Strategies

Given the anticipated volatility around the CPI release, traders should be prepared for several scenarios:

• Hotter-than-Expected CPI: This could lead to a surge in the USD as markets price in higher interest rates. Traders might consider long positions on the USD, particularly against currencies like the Euro (EUR) in the EUR/USD pair.
• CPI In Line with Expectations: If the data aligns with forecasts, the market reaction might be muted, but the USD could still see some support due to the ongoing inflation concerns.
• CPI Below Expectations: A surprise drop in inflation could trigger a USD sell-off as markets bet on a more aggressive Fed easing cycle. Traders might consider short positions on the USD or look for buying opportunities in other currencies.

In conclusion, the upcoming US Core CPI data is a critical event that will significantly influence market sentiment and the Fed’s policy decisions. Traders and investors should closely monitor the release and be prepared to adjust their strategies based on the actual figures and the subsequent market reaction.

Australian Wage Price Index: What to Expect and Its Impact on the Economy and AUD

Upcoming AUD Wage Price Index (QoQ): Key Insights and Implications for the Australian Economy

As we approach the release of the Australian Wage Price Index (WPI) for the third quarter of 2024, scheduled for Tuesday, November 12th at 00:30 GMT, market participants are keenly watching this critical economic indicator. Here’s a detailed analysis of what to expect and the potential implications for the Australian economy and the AUD.

What is the Wage Price Index (WPI)?

The WPI, published by the Australian Bureau of Statistics (ABS), measures changes in the price of labor, unaffected by compositional shifts in the labor force, hours worked, or employee characteristics. It provides a clear picture of wage growth across different sectors, including the private and public sectors[3][4].

Recent Trends and Expectations

In the previous quarter, the seasonally adjusted WPI rose 0.8% and 4.1% over the year. The private sector saw a 0.7% increase, while the public sector rose by 0.9%. This trend indicates robust wage growth, although it has started to show signs of peaking[3].

For the upcoming quarter, market expectations are cautiously optimistic. The Reserve Bank of Australia (RBA) and other analysts anticipate that wage growth will continue but at a slightly slower pace. The RBA's disaggregated approach to forecasting wages growth suggests that the rate of easing will vary across different pay-setting methods, including awards, enterprise bargaining agreements (EBAs), and individual arrangements[4].

Sectoral Breakdown

• Private Sector: Wage growth in the private sector has been strong but is expected to moderate. The Workplace Agreement Database (WAD) indicates that average annualised wage increases (AAWIs) in new private sector EBAs have been significant, but the RBA forecasts a slowdown as the labor market eases[4].
• Public Sector: Public sector wages have seen a notable increase, with a 0.9% rise in the last quarter. This sector is expected to maintain a higher growth rate compared to the private sector, although the overall trend is towards a gradual slowdown[3].

Implications for Monetary Policy

The RBA has been closely monitoring wage growth due to its impact on inflation and labor costs. Despite holding rates at 4.35% in the recent meeting, the RBA remains hawkish, with Governor Bullock indicating no expectation of a rate cut in the next six months. Instead, there are concerns about "persistently high inflation" and the possibility of a rate hike if inflation exceeds expectations[5].

The upcoming WPI data will be crucial in shaping the RBA's monetary policy stance. If wage growth remains robust or exceeds expectations, it could reinforce the RBA's hawkish stance, potentially leading to higher interest rates to combat inflation.

Impact on the Australian Dollar (AUD)

The AUD has been sensitive to economic data and monetary policy decisions. A stronger-than-expected WPI could boost the AUD, as it would indicate a robust labor market and potentially higher interest rates. Conversely, a weaker WPI could lead to a dovish market reaction, anticipating a rate cut or a more accommodative monetary policy stance.

Currently, the AUD has shown resilience, recovering from recent market turbulence. However, the currency remains vulnerable to global market sentiment and economic data. The technical levels for AUD/USD suggest resistance at 0.6668 and 0.6765, with support levels at 0.6509 and 0.6412[5].

Conclusion

The upcoming Wage Price Index for Australia is a pivotal event that will provide valuable insights into the labor market and inflationary pressures. Market participants should be prepared for potential volatility in the AUD, depending on whether the data aligns with or deviates from expectations.

• Key Data Points to Watch:

  • Quarterly wage growth rate
  • Annual wage growth rate
  • Sectoral breakdown (private vs. public sector)
  • Implications for RBA's monetary policy

• Market Reaction:

  • A strong WPI could strengthen the AUD and support higher interest rates.
  • A weak WPI could lead to a softer AUD and expectations of a more dovish RBA.

As the economic landscape continues to evolve, staying informed about key economic indicators like the WPI is essential for making informed trading decisions and navigating the complexities of the forex market.

Australia's Wage Price Index Release: Key Insights and Market Implications for Q3 2024

Upcoming AUD Wage Price Index (QoQ): Key Insights and Market Implications

As we approach the mid-November economic calendar, one of the critical events that will capture the attention of forex traders and economists is the release of Australia's Wage Price Index (WPI) for the third quarter of 2024. Scheduled for Tuesday, November 12th at 00:30 GMT, this data point is pivotal for understanding the labor market dynamics and inflationary pressures in Australia.

What is the Wage Price Index?

The Wage Price Index (WPI) measures the changes in the price of labor in Australia, excluding the effects of compositional shifts in the labor force, hours worked, or employee characteristics. It provides a clear picture of wage growth across different sectors, which is essential for monetary policy decisions and economic forecasting[3][5].

Recent Trends and Expectations

In the previous quarter, the seasonally adjusted WPI rose by 0.8%, with an annual growth rate of 4.1%. This trend has been consistent, with annual growth remaining at 4.0% or above since the September quarter of 2023. The private sector saw a 0.7% quarterly increase, while the public sector experienced a 0.9% rise[3].

For the upcoming quarter, market expectations are closely aligned with recent trends. However, there is a slight anticipation of a potential slowdown in wage growth. The Reserve Bank of Australia (RBA) is keenly watching these figures, as they are concerned about a price-wage spiral that could exacerbate inflationary pressures[4].

Market Implications

The release of the WPI will have significant implications for the Australian dollar (AUD) and broader market sentiment:

Monetary Policy

The RBA has maintained a hawkish stance, with Governor Bullock indicating no expectation of a rate cut in the next six months. Instead, there are discussions about potential rate hikes due to concerns over persistently high inflation. If the WPI data shows higher-than-expected wage growth, it could reinforce the RBA's stance on keeping rates high or even considering further hikes[4].

Currency Movement

The AUD has shown resilience in recent weeks, recovering from earlier turbulence. A strong WPI reading could further boost the AUD, particularly against the USD, as it would indicate robust labor market conditions and potentially higher interest rates. However, if the data disappoints, it could lead to a reversal in AUD gains, especially if global market sentiment turns bearish[4].

Economic Growth

Wage growth is a key indicator of economic health and consumer spending power. Strong wage growth can lead to increased consumer spending, which is crucial for overall economic growth. On the other hand, if wage growth slows down, it could signal a softer economic outlook, potentially impacting retail sales and other consumer-driven sectors[1].

Technical Analysis

From a technical perspective, the AUD/USD pair is currently trading with resistance levels at 0.6668 and 0.6765. Support levels are at 0.6509 and 0.6412. A positive WPI reading could push the AUD/USD above these resistance levels, while a disappointing result might see it test the support levels[4].

Conclusion

The upcoming release of Australia's Wage Price Index for the third quarter of 2024 is a critical event that will provide valuable insights into the country's labor market and inflation dynamics. Traders and investors should closely monitor this data, as it has the potential to influence the RBA's monetary policy decisions, impact the AUD's value, and shape broader economic forecasts. With the RBA's hawkish stance and the ongoing global economic uncertainties, this data point could be a significant catalyst for market movements in the coming days.