Wild swings in markets!
Yesterday’s CPI inflation data for September in the US came in ahead of the consensus forecast, initially triggering a marked firming of Fed rate hike expectations, a sharp rise in US bond yields, and a strengthening of the dollar, with EURUSD falling to a new 2026 to date low just shy of $1.11. These moves were substantially reversed subsequently however as bond yields and the dollar both fell back again amid a sell-off in US stocks (led by the Nasdaq and semiconductor stocks in particular). This has continued overnight with US yields and the dollar lower again on the back of a decline in Asian equity markets. All of this sees EURUSD trading at about $1.1215 this morning (around a cent off yesterday’s lows), while sterling has also regained ground against the US currency to trade at around $1.3250, off lows yesterday of circa $1.3140. EURGBP is a little firmer versus yesterday morning’s levels at about £0.8465.
US government bonds are leading a sharp move lower in yields generally this morning. The benchmark 10-year yield has fallen by almost 10bps overnight and at around 5.10% is now down some 25bps from its post-CPI data highs yesterday afternoon. Equivalent German and UK bonds are also rallying strongly, both around 8bps or so lower at the start of play today. In equity markets, the US Nasdaq shed almost 2% yesterday, while Asian stocks were sharply lower overnight with Japan’s Nikkei index off almost 5% and South Korea’s KOSPI index down around 8%. No surprisingly then, European stocks have opened lower this morning, off almost 1%.
US CPI inflation for September came in ahead of the consensus forecast. Headline consumer prices rose by 0.6% on the month, pushing the annual rate of inflation up to 3.7% from 3.4% in August. Core consumer prices (i.e. excluding energy and food prices) rose by 0.3%, taking the annual rate of inflation on this measure up to 2.6% from 2.4% in August. The increase in core inflation was driven by a rise in services inflation to 3.2% (from 3%), while core goods inflation was unchanged at 0.7%. Markets initially raised the chances of a Fed rate hike this month to around 50/50 following the release of the inflation data, but have since scaled this back to just under 30%.
GDP data for the month of August in the UK, released a short while ago, were better than expected, with the economy expanding by 0.1% versus the consensus forecast for a contraction of 0.1%. Over the three months to August, GDP grew by a relatively robust 0.7% (versus the three months to May) and by 1.8% versus the same three months in 2025, with the services sector the main driver of growth over the two respective periods.
It’s a busy enough day ahead in terms of economic data releases, with industrial production due in the Euro area and retail sales, producer prices (PPI) and jobless claims all scheduled in the US. There are a number of Fed, ECB and BoE members due on the wires over the course of the day.