US inflation to take centre stage after bumper jobs report
The latest US inflation figures will be the highlight for markets this week as traders and policymakers attempt to gauge the strength of the world’s largest economy.
Economists expect the headline rate to fall to 2.3 per cent from 2.5 per cent, which would leave inflation at its lowest level since February 2021.
Core inflation, however, is expected to remain at 3.2 per cent due largely to a rebound in used car prices.
The inflation figures will take on extra significance after the latest jobs report, published on Friday, blew past all expectations.
The US economy added 254,000 jobs in September, well ahead of the 150,000 expected by economists and a big acceleration on last month’s figure of 159,000.
The unemployment rate also posted a surprise drop to 4.1 per cent, having previously been at 4.2 per cent, while wage growth came in ahead of expectations too.
Fed officials had cited concerns about the labour market as a key reason why they had cut interest rates by 50 basis points in September, so the strength of the data suggests the Fed will revert to 25 basis point cuts in the months ahead.
Minutes from September’s meeting will also be released on Wednesday, which will shed further light on last month’s decision.
Only one rate-setter opposed that decision, so a crucial question for investors will be whether the rate-setting body was more divided than the vote-split implied.
Elsewhere, some of the largest US banks – including JP Morgan and Wells Fargo – will deliver their third quarter results on Friday, signalling the start of earnings season.
The crucial question for investors will be how bank profits hold up in the face of a rate-cutting cycle.
Russ Mould, AJ Bell’s investment director said: “Earnings momentum is flagging a little as net interest margins flatten out, loan loss provisions increase and investment banking operations suffer a relative dearth of IPOs”.