U.S. inflation data was a pleasant surprise in October as it came in much weaker-than-expected, raising investor optimism that the peak may have been passed, allowing the Fed to continue tightening monetary policy with a rate hike of less than 75%. which was decided in the last four meetings. In particular, the core consumer price index rose by 0.4% on a monthly basis against an average estimate of 0.6%, and the annual index fell to 7.7% from 8.2% in September. The Structural Index also showed signs of slowing, with a monthly gain of just 0.3%, the weakest in about a year, compared to the 0.5% that the market had been expecting after rising 0.6% in September, mainly due to for a significant drop in the prices of goods (-0.4%), especially used cars (-2.4%), possibly due to significant discounts by enterprises to eliminate their excess stocks. On an annualized basis, core inflation eased to 6.3% after rising to 6.6% in the previous month, the highest level in 40 years.

A positive surprise in U.S. inflation data led to a downward revision of the Fed’s rate trajectory, even as labor market data continues to show a particularly high degree of inaccuracy with the last three months’ moving average for wage growth, according to data from the Federal Reserve Bank of Atlanta – to accelerate by 0.1% per annum in October to 6.4% and approach the historical highs of 6.7% observed in July. Although the official announcements of employment and CPI for November will not be released until the next Fed meeting on December 13-14, both of which will influence the decision on the size of the next rate hike, the market estimates the possibility of a hike below 75 mw. (i.e. 50 p.p.) with a probability of 85% versus 50% before the publication of the data. At the same time, futures suggest a cap below 5% for the key intervention federal funds rate in the second quarter of 2023 and a rate cut of 50 basis points. until the end of next year.

* Department of Financial Analysis and Research of International Capital Markets of Eurobank.