14.10.202109:21 Forex Analysis & Reviews: US stock market, October, 14. Inflation remains above 5%

Exchange Rates 14.10.2021 analysis

Inflation has not decreased in the US. The stock market even managed to rise following the inflation data.

The US stock indices advanced at the close of the market on Wednesday. The Dow remained at the same level, the NASDAQ gained 0.7%, and the S&P 500 added 0.3%.

On Thursday morning, Asian stock markets were trading mixed. Japanese stock indices showed strong growth of +1.4% following an increase in the US stock indices. Chinese stock indices dropped by 0.3%.

As for the commodity market, on Wednesday, the oil price fell by about $1 after the publication of negative US inflation data. However, on Thursday morning, oil recouped losses. So, its quotes are trading again at the annual highs. WTI crude is estimated at $81. The price of Brent crude is $83.90. Oil stays firm despite the report on US oil stockpiles. Inventories have increased markedly by 5 million barrels per week.

The number of coronavirus cases worldwide keeps rising. On Wednesday, there were 440,000 new cases around the world. In the US, there were 100,000 cases. The UK saw an increase of 42,000. Mass vaccination has significantly reduced mortality in those countries where the vaccination rate is at least 60%. Yet, the number of new cases remains high.

The gas crisis in Europe is not easing. On Wednesday, gas futures rose climbed by 10%, to $1,130 on the ICE exchange. The gas price, excluding long-term contracts, remains above $1,000. The EU Commission did not provide any comments on measures to mitigate the gas crisis. Not long ago, it announced that it would unveil the plan on how to take under control the gas market by the end of the year. In addition, 20 of the 27 EU member countries are planning to adopt tax cuts, state aid, and other measures to help households and businesses weather the impact of the energy crisis. The EU Commission will hold a meeting on the energy crisis on October 26.

The S&P 500 is trading at 4,363. It remains in the range of 4,320-4,400. So, the main report of the week has been finally published. In September, inflation turned out to be high again. Inflation rose despite the Fed's expectations of its decline. In September, it totaled 5.4% versus the forecast reading of 5.3%. Core inflation, excluding food and gasoline prices, also amounted to 4% per annum. Importantly, for many years the Fed has repeatedly said that the acceptable inflation rate is 2.5%. currently, inflation significantly exceeds this target. So, the Fed should tighten monetary policy to combat growing inflation. However, now, the central bank continues to assure traders that inflation will decrease next year. Thus, it is ready to tapper gradually bond purchases in November. The reason for such indecision of the Fed is clear. If the regulator takes aggressive measures, the stock market may collapse. Such steps may also severely hurt economic growth and employment, which will inevitably trigger a new economic crisis. Currently, the US is facing a risk of default if congressmen fail to accept a bill on the US debt limit in December.

A weekly report on the number of US initial jobless claims is going to be released today as well as a report on wholesale prices. On Wednesday, the US unveiled the CPI index. Wholesale prices are expected to rise even higher than the CPI index to 6-8% per annum.

Minutes from the previous Fed meeting were released yesterday. It seems that the Fed is determined to begin reducing money infections totaling $120 billion into the economy per month in November and end the taper by mid-2022. It is not clear whether these measures will be enough to lower inflation.

The US dollar index is trading at 93.95. It is trading in the range of 93.60-94.20. The US dollar dropped sharply yesterday to 94.00 from 94.55 following inflation data. Probably, traders are piecing in the Fed's unwillingness to tighten monetary policy.

The USD/CAD pair is trading at 1.2410. It remains in the range of 1.2450-1.2320. The pair declined due to the greenback's decline and high oil prices. It is likely to slide to 1.2300.

The US market has all the chances to rally as the US economy is recovering buoyantly. The Fed is not ready yet to take tough measures to cap inflation.

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