In the Week ahead: U.S. Retail Sales, ECB Monetary policy statement
The US Dollar (USD ) edged slightly higher on Friday after a strong rally throughout the week, driven mainly by the rate differential. The key question for this week is whether the recent rise in US Treasury yields was overdone, given that September’s Consumer Price Index (CPI) only saw a slight increase compared to the previous month.
This contrasts with comments from several Federal Reserve (Fed) officials, who have signaled more rate cuts ahead.
The PPI report showed that annual headline inflation slowed to 1.8%, down from 1.9% in August, but still above the expected 1.6%. Core PPI, excluding food and energy, rose by 2.8%, exceeding estimates of 2.7% and the previous 2.6%, which was revised up from 2.4%. While the monthly headline PPI remained flat, the core figure grew by 0.2%, in line with expectations.
Despite the hotter-than-expected producer inflation, it is unlikely to significantly alter market expectations for a 25 basis point (bps) interest rate cut by the Federal Reserve (Fed) in November, according to the CME FedWatch tool.
On the earnings front major banks posted better-than-expected quarterly results, JPMorgan Chase surged 4.4% after reporting higher-than-forecast third-quarter earnings and raising its annual interest income outlook. Wells Fargo also saw its shares jump 5.6% on strong profit results.
Moreover, Tesla weighed on the consumer discretionary index, with its shares dropping 8.8% after the company unveiled its long-anticipated robotaxi but provided little detail on production timelines or regulatory challenges.
On the energy front, Oil markets remain bolstered by concerns over a potential escalation of Israel's conflicts with both Hamas and Hezbollah. The market is worried that any further escalation in the conflict could disrupt vital oil supplies from the Middle East.
Traders are now focused on upcoming key events, including Thursday's U.S. retail sales and jobless claims data, along with a policy review by the European Central Bank. Later on Monday, Fed Governor Christopher Waller is scheduled to speak.
EUR/USD
The EUR/USD traded sideways on Friday ending as the US Dollar (USD ) remained largely unchanged. This came despite the release of the latest US Producer Price Index (PPI) data, which showed producer inflation accelerating more than expected on a year-over-year basis for September.
The PPI report revealed that annual headline inflation decelerated slightly to 1.8%, down from 1.9% in August. Meanwhile, core PPI, which excludes volatile food and energy prices, climbed by 2.8%, surpassing both the forecasted 2.7% increase and the prior month’s upwardly revised figure of 2.6%.
The stronger-than-expected producer inflation data, following similarly stubborn inflationary signals, raises concerns about inflation's persistence.
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Gold
Gold surged by almost 1% on Friday, positioning the precious metal for a modest weekly gain of 0.17%.
This rise followed a mix of economic data, including Friday’s inflation report and Thursday’s Consumer Price Index (CPI), which limited the US Dollar’s recent advance.
Later in the week, key data points such as Retail Sales, Initial Jobless Claims, and housing market figures could further influence the Fed’s monetary policy direction.
WTI Oil
Oil prices edged lower on Friday as traders weighed the impact of Hurricane Milton on U.S. oil production alongside ongoing geopolitical tensions in the Middle East.
Hurricane Milton Disrupts Florida Hurricane Milton caused significant destruction in Florida, leading to multiple fatalities and leaving millions without power. While the full extent of the damage is still being assessed, the hurricane's aftermath could dampen fuel consumption in the United States, the world’s largest oil producer and consumer.
Concerns over escalating tensions in the Middle East continue to support oil prices, particularly as Israel launched significant strikes on Hezbollah targets in Lebanon this week. Reports suggest that while Hezbollah seeks de-escalation, the potential for further conflict remains.
US 500
The US 500 and US 30 both reached record closing highs on Friday, driven by strong performances from financial stocks. Robust quarterly earnings reports from major banks and inflation data pointing to a potential U.S. Federal Reserve rate cut in November helped fuel the rally.
All three major indices notched their fifth consecutive week of gains, with the US 500 up 1.05%, the US 30 climbing 1.18%, and the US Tech 100 advancing 1.1% for the week.
Earlier in the day, the U.S. Department of Labor reported that the Producer Price Index (PPI) for September was flat on a monthly basis, defying expectations of a 0.1% rise. This followed Thursday’s Consumer Price Index (CPI) report, which showed inflation slightly higher than forecast. However, weekly jobless claims rose more than expected.
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