Markets Position, The lower-than-expected US inflation

The lower-than-expected US inflation print simply extended with economic data serving as an accelerator. European stocks add a normal 0.6% but US indices open with very solid 0.9-2.5% gains. The US NY Empire manufacturing index surpassed the bar with ease, coming in at 4.5 vs a -6 consensus. But new orders turned negative again and the outlook for six months ahead turned deeper below zero from -1.8 to -6.1. Financial markets definitely also spotted the PPI easing by more than expected.

Headline factory inflation for September was revised lower to 8.4% and slowed to 8% vs 8.3% expected. Core gauges retreated from 7.1% to 6.7% and 5.6% to 5.4%. All of them are still at elevated levels but similar to last Thursday’s CPI, that’s of no importance to markets who just want to see pressure decline, both on prices and on the Fed. US yields at some point shed between 4.2 and more than 9 bps at the front and 4.6-6bps at the longer end of the curve before taking back some bps as the US session gets going.

German yields dip 3.3 to 6bps across the curve. The 10y yield earlier didn’t confirm the break beneath its upward sloping trend channel but is attacking that support area again. The European swap counterpart is losing 6.6bps and is closing in on the June interim high/October correction low 2.72/2.73%. Gilts underperform global peers with yields advancing 1.4 to 3.8 bps. We didn’t see a specific trigger but UK yields bottomed around the time of a 2.25bn pounds 2046 bond auction that tailed and had a lower bid-cover than previously. The UK labor market report was a mixed bag, unable to provide any guidance.

The dollar stayed in the defensive overall, unable to benefit from a potential flare-up in the Ukraine war after Russian missiles hit two residential buildings. The trade-weighted greenback slipped from 107 to 105.94. Intermediate support is being tested with the actual next reference already located at 105.01. EUR/USD got an early technical boost as EUR/USD surpassed the 1.035/7 resistance area. The pair went as high as 1.048 before paring gains to just north of 1.04. USD/JPY erases up stick to trade back below 139. At 7.04, USD/CNY is trading at the weakest since mid-September. Staying in Anglo-Saxo spheres, sterling is doing well. EUR/GBP dropped from 0.88 to 0.871 while GBP/USD with a little help from dollar tested the 1.20 big figure.