Hot CPI Print

MACRO FRAME

US activity remains resilient enough to prevent a disinflationary narrative, while fiscal stress has become increasingly evident in euro-area dynamics.

STOCK INDEX FUTURES

Equity index futures fell sharply following September’s consumer price data, which showed that core price pressures grew quicker than expected at 0.3% m/m and 2.6% y/y. Headline inflation increased 0.6% on the month, matching expectations, while the annual rate accelerated to 3.7% from 3.4%. The report strengthens the case for continued policy restraint, even if it does not by itself settle the October rate decision. Before the release, the S&P 500 was up 0.22% at 7,872, Dow up 0.41% to 52,149, and the Nasdaq was flat at 30,790. ASML’s raised sales outlook provided support after the recent semiconductor selloff. The company said AI demand is strong enough that it cannot fully meet customer requirements in 2027–28, lifting European technology shares and reinforcing the outlook for infrastructure spending. Bank earnings offer a more mixed assessment of growth beyond technology. JPMorgan’s markets revenue rose 15% year over year, while Goldman Sachs beat profit estimates. Investment banking was softer, with executives pointing to a September slowdown as higher yields and volatility delayed transactions. Nevertheless, deal pipelines remained healthy, and JPMorgan and Wells Fargo reported little deterioration in borrower credit quality. ASML’s outlook and resilient bank credit conditions provide support, but stronger-than-expected core inflation raises the hurdle for valuations. Today’s Bank of America, Morgan Stanley and BlackRock results, followed by TSMC on Thursday, will help determine whether earnings strength can broaden sufficiently to offset that pressure.

Watch point: Despite tech volatility, the earnings backdrop suggests bullishness, despite the advent of a new hiking cycle.

CURRENCIES

US DOLLAR: The USD index rose 0.46% to 102.65. The CPI report provides a firmer fundamental case for dollar support than the pre-release outlook. The prospect of a quick easing in US inflation pressures does not exist and continues to reinforce expectations of further Fed tightening, albeit not at the October meeting. Regardless, markets have increased expectations of near-term tightening, now assigning a 50% probability of a hike this month, compared with 20% yesterday.

Watch point: While current fiscal, macro, and geopolitical factors favor the dollar, it is beginning to enter overbought territory and could be susceptible to a modest correction.

EURO: The euro fell 0.54% to $1.1138, breaking below Monday’s 17-month low of $1.11525, following the release of September’s US inflation data. The euro remains vulnerable to both US rate support and Europe-specific risks. Higher energy costs are complicating the region’s inflation and growth outlook, while France’s fiscal position continues to weigh on confidence. ECB President Christine Lagarde emphasized fiscal consolidation as the solution to France’s debt problems, tempering speculation about central-bank purchases to contain French yields. Any slowing of its tightening cycle could further weaken the euro’s relative rate support. Evidence of European economic resilience, including upgraded German growth forecasts, are a potential source of support for the euro at lower levels. A Reuters poll showed that 90%  of economists surveyed expect the ECB to raise rates once more in December, after previously expecting the bank to be done with its tightening cycle.

Watch point: French sovereign stress will continue to be a dominant factor in price direction, however, the $1.10 level acts as a strong resistance level.

BRITISH POUND: Sterling is 0.32% lower against the dollar at $1.3211. Sterling has held up better against the euro, with EUR/GBP near 0.8434, a fresh low since June 2025. Reports that new UK budget initiatives will be funded through taxes or spending cuts rather than additional borrowing offer some reassurance. However, the October 28 budget remains a risk with gilt yields elevated and fiscal headroom limited. UK rate expectations also face scrutiny. Bank of England Chief Economist Huw Pill expressed skepticism about market pricing of four hikes over the coming year, even though he has recently favored an increase himself. That leaves sterling balancing relative resilience against the euro with the risk that markets have priced too much BoE tightening.

JAPANESE YEN: The yen fell 0.36% to 158.88 yen per dollar. The immediate issue is whether stronger US inflation translates into higher Treasury yields and wider rate differentials,  which it most likely will. Japan’s September wholesale inflation undershot expectations at 6.8% y/y, which lead investors marginally reduce expectations of Bank of Japan tightening this year. Markets now price 20 bps of tightening be year-end. The currency remains under pressure from US rate differentials and a market that is unconvinced the central bank will raise rates in a timely manner. The greatest near-term upside risk for the currency remains market intervention.

Watch point: While markets are underwhelmed at the BOJ, a path for additional rate hikes looks to be  appears to be the primary scenario.

AUSTRALIAN DOLLAR: The Aussie fell 0.21% to $0.6965. Markets are still digesting minutes of the Reserve Bank of Australia’s last policy meeting. Which proved rather hawkish than what was portrayed at the post meeting press conference given by governor Bullock. The minutes showed unanimous backing for September’s increase to 4.60% and persistent concern that inflation could remain too high for too long. Markets price approximately a 43% chance of another hike in November and around 51% in December. Third-quarter inflation later this month will be important, while falling business confidence highlights the growing pressure from higher rates and energy costs. Thursday’s Australian employment report will test the new pricing expectations. Consensus expects 20,000 additional jobs and an unchanged 4.6% unemployment rate. Further evidence of increasing slack would weaken the case for another RBA hike following September’s increase to 4.60%.

Watch point: August’s hiring figures argue for a higher-for-longer stance, leading the focus to Q3’s inflation data.

TREASURY FUTURES

Yields moved higher across in the curve in a flattening move in response to September’s inflation data. The two-year/10-year spread has narrowed to roughly 37 bps from 44 bps on Friday. Markets now assign an 50% probability that the Fed raises rates this month. Energy dominated the headline increase: gasoline rose 9.1%, accounting for more than half of the monthly gain, and the broader energy index increased 5.2%. Food prices were unchanged. Underlying pressure was not limited to energy, however. Shelter rose 0.4%, core services increased 0.4% and core goods gained 0.3%. Used vehicles, recreation, education and airline fares also contributed to the core increase. The policy question is therefore whether September’s core strength persists and whether higher borrowing costs are already providing sufficient restraint. Waller has argued that stronger growth and AI investment help explain elevated yields, with higher long-term rates doing some of the Fed’s work. Today’s Beige Book, Thursday’s PPI and retail sales, and subsequent Fed remarks will help establish whether policymakers regard the inflation surprise as grounds to accelerate tightening or as a reason to retain a firm bias while gathering more evidence.

Watch point: Inflation risk, fiscal and corporate supply, capital competition and term premium will be key factors in determining whether the yield curve maintains its recent flattening or falls into a bear steeping move.

Interested in more futures markets?  Explore our Market Dashboards here.