Stocks gain after soft start; CLP in focus

Summary:

• US indices at daily highs as Powell testifies 

• US inflation offers a mixed picture

• UK CPI falls to 3-year low

• Market alert: Chile on fire

This week the focus in the US has been less on economic releases and more on potentially market moving speeches form prominent figures. After Trump’s speech yesterday at the Economic Club of New York, it’s now the turn of Jerome Powell with the Fed chair testifying before the Joint Economic Committee in Washington DC. The most interesting comment from the prepared remarks was that “investors risk appetite elevated in some asset classes”. The  US500 is trading at its highest level of the day as Powell speaks. Price is just over 10 points from its highest ever level of 3102.

The main US economic release showed headline inflation edge up to 1.8% y/y in October (consensus 1.7%) but core inflation was lower at 2.3%, below market consensus and September reading of 2.4%. Month on month core inflation was 0.2% - in line with expectations, so overall the picture is fairly neutral for the greenback. US core inflation is above 2% but bear in mind that the Fed watches core PCE inflation that is much lower. 

A larger than expected fall in the most widely followed gauge of inflation could lead to further calls for the Bank of England to lower interest rates, with the consumer price index for October dropping to its lowest level since 2016. Last week rate-setters from the bank surprised the markets when 2 of the 9 committee members voted for an interest rate cut and they will likely see this fall in price pressures as a justification for that stance. However, a closer look at the breakdown of the report will detract from this argument somewhat, as the decline is largely due to lower energy prices and a core reading which strips this out remained steady at 1.7%.

Over the past week the pound has been little changed on the whole, despite a flurry of economic releases. The standout worst performer has been the Chilean Peso which has come under pressure as protests there have intensified, with a national strike proposed next week.

Last year markets were rattled by currency crises in Turkey and Argentina. This year the problems arose in a place where not many were expecting them. In this analysis we investigate the root of the Chilean crisis, consider the impact on the economy and analyse the USDCLP currency pair. Read our market alert on Chile in full here.