Market movers today
In the US , the September CPI figures are due out. Core inflation has moved sideways throughout 2016 looking at both the CPI and the PCE figures. This suggests that upward inflation pressure has been limited. Some of the dovish FOMC members (most notably Chair Janet Yellen) have explicitly mentioned that low inflationary pressure gives the Fed 'some running room'. Hence, we expect a lot of attention to be on whether core inflation will start to pick up in late 2016, as it will be a key determinant of whether or not we get a December rate increase. Currently, we see limited signs that core inflation is about to increase sharply and we doubt that the picture will change much this year. We estimate core CPI increased 0.2% m/m in September, implying an unchanged CPI core inflation rate at 2.3% y/y. We estimate headline CPI increased 0.3% m/m in September (although it is a close call between 0.2% and 0.3% m/m), implying a headline inflation rate of 1.4% y/y, up from 1.1% y/y in August. The increase in headline CPI inflation is due mainly to a smaller negative contribution from energy prices.
In the UK , CPI inflation data for September is also due. Inflationary pressure is increasing, due mainly to the weaker GBP, which increases import prices. The trade-weighted GBP is around 18% weaker than a year ago, so potentially import prices could increase accordingly over time. We estimate CPI inflation rose to 0.9% y/y in September, from 0.6% y/y in August, due to the downward contribution from lower oil prices. We estimate CPI core inflation rose to 1.4% in September, from 1.3% in August. Although we expect CPI inflation to increase above the 2% target next year, we believe the Bank of England will see through this to support the economy, as the higher inflation is only temporary.
For the eurozone , the ECB is set to release its bank lending survey. In light of the market's attention on the banks' weaknesses, together with the ECB's dependency on a well-functioning banking sector, we expect more focus on the figures than usual. Demand for loans and credits has been increasing since mid-2014 and we expect this to continue.
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