First Light News: Warsh Gives Little Away Despite Hotter Inflation Prints

Warsh Offers Little to Work With

Earlier this morning (for me, anyway), Fed Chairman Kevin Warsh stole the spotlight at the annual IMF meeting in Bangkok, Thailand. Although he has not given much away since taking the top spot at the Fed, I felt it was worth watching for clues following the hot CPI and PPI.

Unsurprisingly, he gave us little to work with, reiterating that he does not ‘prejudge meetings’, which did not help the USD. EUR/USD caught a bid during the presser, but I believe this was largely because Warsh was less hawkish than market participants expected after the recent US data, prompting an unwind of USD long bets.

Hot Producer Prices & Mixed Retail Sales

Yesterday, September US producer prices (PPI) rose to 6.3% YY, up from the revised 5.6% in August, and surpassed both the median estimate of 5.3% and the maximum estimate of 5.6%. MM, we also saw price pressures rise 1.3%, beating the 0.5% median and up from the previously revised 0.4%.

September retail sales also beat, rising 0.8% MM versus a 0.3% consensus, though this was below the upwardly revised prior reading of 1.3%. However, higher energy prices likely inflated this number; Americans spent more at the pump.

The retail control metric reflected this, coming in cooler at 0.1%, down from a revised 1.2% and a 0.3% consensus. The low 0.1% reading signals that underlying economic growth from consumer demand is cooling, despite the hot headline number.

Live Fed Meeting?

Hotter CPI on Wednesday and hotter PPI yesterday raise the question of a possible live Fed meeting later this month. We also have some two-way risk at play here.

On one side, broad risk aversion is driving the bond market. US Treasury yields on 2s, 10s, and 30s are lower across the curve.

On the other hand, the Fed could move at the end of this month; markets are currently pricing in about 10 bps of tightening (or 40% odds). Ultimately, recent inflation numbers will not be pleasant reading for the Fed.

Dip Buyers Return in Asia; Futures Point to Positive Start in Europe/US

Overnight, Asia-Pac shares reversed some recent losses, with dip buyers stepping in as the chip-stock rout eased – Warsh’s comment on AI’s benefits to the US economy certainly helped. South Korea’s KOSPI is up nearly 4% as of writing, while Japan’s Nikkei 225 is up almost 2%.

European and US equity index futures both point to positive cash opens today.

Day Ahead

The day ahead is light on macro drivers; attention will now shift to next week’s batch of CPI inflation prints from Canada, the UK, and New Zealand.

Until then, have a wonderful weekend!

Written by FP Markets Chief Market Analyst, Aaron Hill