Federal Reserve Federal Reserve Federal Reserve

Today we celebrate US inflation and tomorrow we think

PG
Peter Garnry

Head of Equity Strategy

Summary:  Nasdaq 100 futures are up 4% on a lower than estimated US inflation figure m/m across both headline and core (less energy and food) breathing fresh air into the 'Fed pivot' trade'. Looking deeper into the US inflation report we observe that the US services inflation less energy is up 0.5% m/m in October with the six month average at 0.6% m/m and unchanged over the past five months suggesting that inflation in the services sector is getting sticky at above 7% annualised rate. But today we celebrate the inflation and tomorrow we will think again about the deeper picture.


Nasdaq 100 futures rally 4% on weaker than estimated US CPI

Following a week of negative sentiment and the market almost giving up on its ‘Fed pivot’ trade and the ‘Xi pivot’ on Covid policy weakening due to rising cases in China, the market was at edge hoping for good inflation news out of the US. The newly releases US CPI report for October showed that headline inflation m/m was 0.4% vs est. 0.6% and CPI core m/m (less energy and food) was 0.3% vs est. 0.5%. The reaction is strong to the upside with Nasdaq 100 futures rallying 4.3% as the sector has the highest sensitivity to the Fed’s terminal rate and interest rate trajectory.

1-hour bars over 10 sessions on Nasdaq 100 futures

10_PG_1
Source: Saxo

Inflation is getting sticky in the services sector

If one digs deeper into the US inflation report it might not be as rosy as the headlines suggest. The Services less Energy subcomponent is 57% of the inflation basket and came in at 0.5% m/m with the 6-month average at 0.6% unchanged over the past five months. This suggests that the US services sector is stabilising at a 7.4% annualised rate and with the US labour market still extremely tight wage pressures are likely to continue. This realisation might surface tomorrow when the inflation report is digested in its finer details. But today we celebrate the US inflation print and tomorrow we think again.
10_PG_4

5-year chart on Nasdaq 100 futures

10_PG_3
Source: Saxo

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.