Via Kit Juckes at SocGen:<\/p>\n
Oil and copper prices are down, equity indies are up, the Euro\u2019s weaker and the dollar by and large stronger. On the economic front, Norwegian GDP beat expectations at +1.8% overall and +0.2 for mainland GDP, while UK core CPI inflation edged up to 1.1% from 1%, the headline meanwhile stuck at -0.1%.<\/p>\n
The resilience of global market sentiment is perhaps the most striking feature of markets at the moment. The US releases CPI data in a while but I suspect all eyes will be on markets rather than data. US core CPI, at 1.9%, is higher than most people think it is, and most people think headline CPI is going to average well below core in the next year or two, which only makes sense in oil prices can go on falling. Fast. As for food prices, this morning\u2019s FT tells me that lentil and chickpea prices are rising sharply because of El Nino. Important in India, but if anyone thinks I\u2019m paying up for lentils\u2026..<\/p>\n
The Euro\u2019s fall has been the most visible market reaction to the Paris atrocities, aided by steadily falling Bund yields. It fuels the DXY\u2019s advance on 100, and that in turn fuels the wider stronger dollar story. The Euro\u2019s only 0.2% maker today however, and it\u2019s likely to be slow-moving from here. Positions have been rebuilt and the dollar isn\u2019t actually getting much help from the Treasury market at the moment, 10-year yields having simply settled back into a range.<\/p>\n
The steady and remorseless weakness of major commodity prices is possibly a bigger story. Especially if it fails to feed back into bigger global worry through equity markets. I saw a poll yesterday showing an even 50-50 split on whether the Fed is likely to hike in December, as people saw yet another reason for the Fed to delay. But if equity markets remain resilient and there are no surprises in the CPI data today, for starters, then the market will slowly become more confident again of a December lift-off. Of course, I\u2019m not alone in hoping the Fed acts just so that we can move on from wondering when they finally will (even if we know all we\u2019ll do then, is wonder when the second hike will come instead). Still, if weaker commodity prices don\u2019t de-rail risk sentiment, then we get left with deteriorating fundamentals across a swathe of emerging market assets with no compensation from the Fed.<\/p>\n
I think US breakevens are set to start edging up soon. the euro will remain soggy, particularly in Europe where SEK, GBP and PLN are all better bets for now. The yen can remain weak while risk sentiment improves and anything commodity-related is in trouble of we get a spike through the lows in oil.<\/p>\n