US bond yields rose, the yield curve de-inverted, equity markets gained, the US dollar strengthened, while oil, gold, and Bitcoin increased.

US bond yields have shown bullish momentum over the past week, with the long end of the curve demonstrating noticeable outperformance. The yield curve de-inverted during this period, driven by disappointing inflation data. Previously, the market had anticipated a 50-basis-point rate cut for November, but expectations have now shifted to a 25-basis-point cut due to elevated core inflation and rising consumer expectations for one-year inflation.

Equity markets posted positive returns, with stocks rising for the fifth consecutive week. Small-cap stocks began to recover but still trailed behind large-cap stocks. The "Magnificent 7" stocks increased by over 1%, contributing to both the S&P 500's 45th all-time high this year and gains in the Nasdaq 100 index, despite the VIX remaining above 20 throughout the week. This upswing took place amid renewed signs of persistent inflation.

The US dollar appreciated against the euro, reaching 0.91445, as the market now sees a higher probability of rate cuts in Europe compared to the US, following US inflation data. In the commodities sector, WTI crude oil advanced 1.40%, marking its second consecutive week of gains, fuelled by escalating geopolitical tensions in the Middle East, the impact of Hurricane Milton, rising inventories, and weak demand expectations. Meanwhile, gold prices extended their upward trend, recording gains for the fifth straight week. In the cryptocurrency market, Bitcoin increased by nearly 1%.

U.S. inflation eases slightly, but core inflation rises. Consumer confidence dips, while inflation expectations increase. Oil inventories rise, impacting crude prices amid geopolitical tensions.

U.S. inflation is easing slightly, yet core inflation remains elevated, raising questions for the Fed regarding the extent of rate cuts. The September CPI revealed a 0.2% monthly increase, resulting in a year-over-year inflation rate of 2.4%. Core inflation increased by 0.3%, driven by higher costs in apparel, airfares, and healthcare, bringing the annual rate to 3.3%. Although consumer confidence dipped slightly, it remains higher than last year. Additionally, U.S. oil inventories rose significantly, driving down crude prices, while geopolitical tensions and Hurricane Milton pose potential supply risks. The IEA forecasts robust supply growth for 2025.

Inflation is easing slightly in the U.S., but core inflation remains stubbornly high. We expect the Fed to implement rate cuts of 25 basis points in November and December, complicating its monetary policy objectives.

The recent mixed economic data continues to create uncertainty for the Fed concerning the future direction of its monetary policy. The CPI for September reported a monthly increase of 0.2% in headline CPI, resulting in a year-over-year rate of 2.4%, a slight decline from the previous rate of 2.5%. Notably, the housing and food indices rose by 0.2% and 0.4%, respectively, contributing to over 75% of the monthly increase, while the energy index saw a significant drop of 1.9%. Although headline inflation shows signs of easing, it remains persistently high as it nears the final stages of its decline. The six-month annualized rate has decreased to 1.6%, the lowest level since September 2020.

Core inflation metrics revealed larger-than-expected monthly increases, rising by 0.3%, compared to an anticipated 0.2%. This marks the second consecutive month of elevated core inflation. Key contributors to this increase included substantial rises in apparel (1.1%), airfares (3.2%), and healthcare (0.4%), which were partially mitigated by modest gains in housing (0.2%) and unchanged results in education and communication. On an annualized basis, core inflation increased year-over-year to 3.3%, up from 3.2%. Core inflation remains particularly stubborn in the services sector (4.7%), which typically takes longer to adjust unless a significant economic slowdown occurs—an unlikely scenario at this time. This trend indicates that underlying inflationary pressures continue to persist, complicating the Federal Reserve's efforts to achieve its target of 2% YoY inflation. Additionally, average hourly earnings increased by 1.5%, surpassing the expected 1.3%, while weekly wages rose by 0.9%, aligning with forecasts.

Despite this data, we anticipate rate cuts of 25 basis points in November and December, contingent upon forthcoming data, especially concerning employment trends.

Consumer sentiment dipped slightly but remains up year-over-year. Inflation expectations rose, while frustration over high prices persists, with minimal economic concern tied to geopolitical conflicts.

Consumer sentiment dipped slightly by 1.2 index points but remained within the margin of error after two months of consecutive gains. Overall sentiment is now 8% higher than the same time last year and has surged nearly 40% since hitting a low in June 2022. While inflation expectations have eased considerably, frustration over high prices persists among consumers. Business conditions over the long term reached their highest point in six months, though both current and expected personal financial conditions saw modest declines. Despite extensive media coverage of geopolitical conflicts in the Middle East and Ukraine, fewer than 5% of consumers attributed these events to economic concerns. As the upcoming election approaches, with Harris maintaining a lead, some consumers are withholding judgment on the long-term economic outlook. Inflation expectations for the next year increased to 2.9% from 2.7%, while long-term expectations (5-10 years) edged down slightly to 3.0% from 3.1%.

We anticipate a modest boost in consumer confidence heading into year-end, driven by expected interest rate cuts from the Fed, easing inflation, and the election outcome.

US oil inventories rose sharply, driving prices lower, while geopolitical concerns and Hurricane Milton posed supply risks. The IEA forecasts strong supply growth in 2025.

US oil inventories rose sharply, driving crude prices lower amid a broader sell-off in risk assets. Prices partially recovered later in the week due to geopolitical uncertainty in the Middle East and potential supply disruptions from Hurricane Milton. The Energy Information Administration (EIA) reported a 5.8-million-barrel increase in US commercial crude inventories, well above the expected 1.3 million barrels, though lower than the 10.9 million barrels estimated by the American Petroleum Institute (API). Total US crude inventories now stand at 422.7 million barrels, around 4% below the five-year average. Crude stocks in Cushing rose by 1.2 million barrels, their highest since late August 2024. Gasoline inventories fell by 6.3 million barrels—much more than the anticipated 572,000-barrel draw—while distillate stocks dropped by 3.1 million barrels, exceeding the expected 1.7-million-barrel decline. The International Energy Agency (IEA) indicated that global oil demand growth could weaken further, particularly from China, while supply is projected to remain strong in 2025, driven by the US and other key producers.

With ongoing economic weakness and forecasts from multiple agencies suggesting a decline in crude oil demand, we do not anticipate any price increases for the remainder of 2024.