The Dow Jones Industrial Average (DJIA) experienced a dip of around 100 points on Thursday before rebounding to the middle ground. The rise in US Consumer Price Index (CPI) inflation figures for September came in higher than expected, while US Initial Jobless Claims also increased, indicating potential slack in the labor market. Despite this, market bets are leaning towards a 25 bps cut in November.
The US CPI inflation for September dropped to 2.4% YoY, slightly lower than the previous 2.5% but still higher than the anticipated 2.3%. Core CPI inflation also ticked up to 3.3%, defying expectations of 3.2%. The persistent inflation figures pose a challenge for hopes of accelerated rate cuts by the Federal Reserve.
US Initial Jobless Claims rose to 258K for the week ending October 4, surpassing the expected 230K and exceeding the previous week’s 225K. While still within reasonable levels, the increase signifies the highest week-on-week new unemployment claims since May 2023.
Investors face a dilemma following the release of Thursday’s data points. High inflation makes it difficult for the Fed to justify further rate cuts, but weakening labor data could push the Fed towards more aggressive rate reductions. However, a drastic shift towards negative labor data could signal an impending recession, threatening market stability.
According to the CME’s FedWatch Tool, the majority of rate traders are expecting a 25 bps rate cut in November, with a 90% probability of the Fed implementing a quarter-point cut on November 7. The remaining 10% anticipate no change from the Fed next month.
The Dow Jones struggled initially but managed to recover some losses, with Amazon being one of the few companies showing growth. Price forecasts suggest a consolidation phase for the DJIA after a recent rally, with support levels holding steady. Momentum indicators offer mixed signals, hinting at potential short-term pullbacks.
Inflation FAQs explain the concept of inflation, how it is measured through indices like CPI, and its impact on different asset classes. Higher inflation can result in increased interest rates by central banks, affecting currencies and investments like Gold. Despite common belief, high inflation does not always lead to a stronger currency and can have varying effects on different financial instruments.
