China is once again facing disinflation problems. BoE head pointed to the bank’s “dovish” stance

The US economic news on Wednesday was favorable for the dollar as wholesale sales for September rose by 2.2% m/m, which exceeded expectations of 0.9% and was the largest increase in 20 months. Meanwhile, the MBA weekly US Mortgage Applications rose by 2.5% week-over-week

On Thursday, markets are expecting Fed Chairman Powell’s comments during a conference call on monetary policy issues. On Wednesday, Powell did not comment on the economy or interest rates while delivering opening remarks at the Fed’s Research and Statistics Division Centennial Conference. Currently, markets are factoring in a 10% probability of a 25 bps rate hike at the next FOMC meeting on December 12-13 and an 18% probability of a 25 bps rate hike at the January 30-31, 2024 FOMC meeting.

The ECB’s monthly survey of consumer inflation expectations showed that 1-year Eurozone inflation expectations rose to a 5-month high of 4.0% in September from 3.5% in August, but 3-year inflation expectations were unchanged at 2.5%. Eurozone retail sales for September fell by 0.3% m/m, weaker than expectations of 0.2% m/m. ECB Governing Council representative Kazaks said yesterday that the ECB cannot rule out the possibility that further rate hikes may be needed.

Key messages from the Bank of England (BoE) Governor’s speech yesterday:

• It is really too early to talk about cutting rates;
• The main message is that we think policy should be restrictive for a long period of time, even though there are upside risks;
• We think policy is restrictive now, and economic growth is very weak.

Crude oil prices Wednesday extended Tuesday’s sharp losses as crude oil (WTI) fell to a 3-month low. Weakening oil demand contributed to the sell-off amid recent economic news indicating weakness in China’s economy. Additionally, crude oil has been pressured by hawkish central bank comments that have curbed speculation that central banks are done raising interest rates. Tuesday afternoon’s weekly API report was negative for crude oil as it showed that US crude inventories rose by 11.9 million barrels last week. There was no weekly EIA inventory report on Wednesday due to a system update.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.33% on Wednesday, China’s FTSE China A50 (CHA50) lost 0.28%, Hong Kong’s Hang Seng (HK50) was down by 0.58% for the day, and Australia’s ASX 200 (AU200) was positive by 0.26%.

In China, the latest data showed that both consumer and producer inflation fell in October, bringing the country into disinflation territory for the second time this year. The inflation data was released against a backdrop of disappointing trade data for October, with data released last week showing a steady decline in business activity in China during the month. The weak October data added to fears of a slowdown in China’s economic growth. However, more significant losses in Chinese equities were tempered by gains in real estate stocks, which rose amid reports that Beijing is considering additional measures to support the sector.