Inflation data out of the US last week was slightly higher than expected, which further poured cold water on investor sentiment after a relatively encouraging start to the week. Bond yields hit new highs, buoyed by fears of recession. In the US, the 10-year yield briefly overshot the 4% mark, while the 2/10-year spread reached 50 basis points (bp). The inflation slowdown is taking time to materialise even though the global economy has been losing traction.

Oil fell by around 8% after OPEC lowered its demand growth forecasts for 2022 and 2023. WTI retreated towards USD 85 while Brent fell to USD 92.

US producer prices rose by more than expected in September, showing an increase of 0.4% versus the previous month and 8.5% relative to 12-months earlier (+8.7% in August). Consumer prices also rose more sharply than expected last month. Underlying inflationary pressures continued to build, reinforcing expectations for a fourth straight 75bp hike by the Fed next month.

At the same time, the consumer price index (CPI) rose by a further 0.4% in September after edging up by 0.1% in August. This was higher than the expected 0.2%. Year on year, this inflation metric advanced by 8.2% versus the forecast 8.1%, having shot up by 8.3% in August. In June, inflation had peaked at 9.1% year-on-year – its highest level since November 1981.

Against this backdrop, US retail sales were unchanged in September as high inflation and surging interest rates dampened demand for goods.

The Michigan confidence index increased to 59.8 from 58.6 in September versus the economist consensus of 59.0. The component tracking consumers’ views on current economic conditions rose to 65.3, beating expectations. This was up from 59.7 in the previous month and higher than the 59.9 consensus estimate.

China’s consumer price index rose by 2.8% year-on-year in September after gaining by 2.5% in August. The producer price index rose by 0.9% year-on-year for the same month, down from 2.3% in August, versus a forecast for +1.0%.

Key for markets this week will be third-quarter earnings reports and statements from Xi Jinping at the 20th Communist party congress about the new roadmap.

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