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Investors are on the edge of their seats, waiting for the latest scoop on US inflation data to take a fresh direction in both stock and bond markets. According to the consensus of analysts’ estimates on a Bloomberg survey, the US inflation may have slowed to 3.3% last month, from 3.7% printed a month earlier. Core inflation is seen unchanged at 4.1%. An uptick in health insurance costs could give a slight boost to October inflation figures, while the latest US consumer survey, released last Friday, showed that the US consumers expect inflation to climb at an annual rate of 3.2% over the next 5 to 10 years.

Today, an inflation read in line with expectations, or ideally softer than expected, should give further support to the Federal Reserve (Fed) doves, cement the idea that the Fed is done hiking the interest rates and boost the rate cut expectations for next year. A read above expectations should bring Fed hawks back to the market and increase the bets of a rate hike in December. But activity on Fed funds futures gives around 85% chance for a no rate hike in the Fed’s December meeting, and the inflation numbers must look very bad to reverse that expectation.

And anyway, what investors are interested in right now is not whether the Fed will hike one more time or not – because they are convinced that it won’t. Instead, what everyone is trying to figure out right now is: when will the Fed start cutting rates, and by how much it will cut rates next year.

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What everyone – most investors, every household and every politician want to see and to sense right now is the end of the global monetary policy tightening cycle, and the beginning of the end starts mostly with the Federal Reserve (Fed). And the uncertainty regarding when the Fed will be done hiking the rates is killing everyone, but even the Fed itself doesn’t know when tightening will/should end. It will depend on US politics and the crucial economic data, like inflation, jobs, and growth figures.

This week, we will plunge back into the US political saga, as the government short-term funding deadline is due 17th of November and not much progress has been made to seal a fresh deal.

The all-important inflation data due Tuesday is going to impact the inflow/outflow dynamics in US Treasuries before the worries grow into the Friday funding deadline. A sufficiently soft inflation read should keep bond traders in appetite for further purchases and mask a part of the political worries, while disappointment could keep buyers on the sidelines and amplify a potential political-led selloff.

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Bad. Yesterday’s 30-year treasury auction in the US was bad. Then, the Federal Reserve (Fed) Chair Jerome Powell’s speech at an IMF event was hawkish. Powell repeated that the FOMC will move ‘carefully’ and that the Fed won’t hesitate to raise the interest rates again, if needed. The bonds sold off, the US yields spiked higher.

Of course, the sudden jump in US yields hit appetite in US stocks yesterday. The S&P500 fell 0.80%, and Nasdaq fell 0.82%. The US bond auction brought along a lot of volatility, questions, and uncertainty.

The US dollar jumped to its 50-DMA as a response to a rapid surge in the US Treasury yields. The EURUSD sank below the 1.07 level. Cable traded near 1.22 as the dollar-yen rose above 151.

In energy, the oil bulls come in timidly near the $75pb psychological support. The oil selloff probably went too far and it’s time for – at least – a minor positive correction. A move toward the $78/80 range would be reasonable, but there is a fundamental shift in market narrative regarding the war in Gaza and potential implications on oil prices.

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The US 10-year yield plunged below the 4.5% mark yesterday, even after a 40-billion-dollar sale of US 10-year papers saw lower-than-expected demand and resulted in a slightly higher-than-anticipated yield of 4.519%. Today, all eyes are on the $24 billion worth of US 30-year bond auction. The US 30-year bond yield plunged to 4.60% yesterday, after rising to 5.17% last month.

That’s disquieting; the US 10-year yield has now fallen more than 50bp in less than 2 weeks. Yes, a part of it is a correction of the accelerated rise that we observed starting from September. But that rise partly explains why the Fed members decided to refrain from announcing another rate hike at the latest policy meeting. As such, the recent fall in long-term yields will certainly get them back to a high-alert level.

Elsewhere, China doesn’t have inflation and it can’t create it; that’s a problem. Released today, the latest Chinese CPI data came in worse-than-expected. The Chinese consumer prices fell 0.2% in October, on a yearly basis, versus no change expected, and producer prices fell 2.6%, slightly better-than-expected but not encouraging.

Worries regarding the Chinese economy don’t help lift sentiment in oil markets. The barrel of US crude fell to $75pb yesterday as the selloff continued at full speed. The selloff should slow as the market is now at the limit of oversold conditions, but investors are increasingly concerned about slowing global demand.

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Portuguese markets were hit yesterday by the resignation of the country’s PM following an investigation into possible crimes of corruption involving lithium and hydrogen projects. The Portuguese PSI 20 fell more than 2.50% on political jitters and uncertainty. But the scandal didn’t resonate much in the rest of the European indices – which were little changed yesterday. The EURUSD slipped below the 1.07 mark, the US dollar extended its gains for a second day but the US yields continued to fall despite cautiously hawkish comments from Fed members.

The S&P500 is above its 50-DMA for the 3rd day and the rate-sensitive Nasdaq 100 broke above its summer down-trending channel top.

The barrel of crude oil fell almost 5% yesterday after the $80pb support gave in to the growing weight of the increasingly aggressive bears. Crude oil is approaching oversold market territory.

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The US bond yields rebounded, and the equity rally slowed on Monday. The chatter of weak demand and profit warnings are not great for equities, but the worst news would be sticky inflation despite slowing growth and a persistently long period of high interest rates. For now, the Federal Reserve (Fed) is perceived as being ‘done’ with interest rate hikes.

But despite a series of no rate hike news that we received over the past few weeks from major central banks including the Fed, the European Centra Bank (ECB) and the Bank of England (BoE), the Reserve Bank of Australia (RBA) raised its rates by 25bp, as broadly expected, today. The RBA hike came as a sour reminder that there is no rule that says that a bank can’t hike rates after pausing for four meetings. Interestingly, the AUDUSD fell after the decision.

Elsewhere, the Chinese exports fell for the 6th consecutive month and Iranian oil exports fell for the 2nd straight month to 1.43mbpd as demand in Asia weakened. Yesterday’s crude oil gains remained limited, and there is a stronger case for a decline below $80pb level.

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The excellent combo of lower-than-expected US NFP, weaker-than-expected wages growth and the unemployment rate at an almost two-year high sent another wave of optimism to the financial markets on Friday that the Federal Reserve (Fed) is done hiking the interest rates. US yields further fell and US equities roared after three months of struggle.

In the FX, the US dollar slid the most since July and sank below its 50-DMA, triggering a beautiful rally in major pairs. The EURUSD flirted with 1.0750, Cable rallied to 1.2390, the USDJPY fell below the 150 mark, and the AUDUSD jumped to its 100-DMA and could extend rally if, as expected, the Reserve Bank of Australia (RBA) delivers a 25-bp hike tomorrow for the first time in 5 months.

But there is one kid in that party room that’s less cheery than the others and that’s crude oil. Crude oil remained under pressure on Friday and was only timidly bid this morning on rising tensions in Gaza, the news that Israel encircled Gaza city and the headlines that Saudi and Russia will stick to their planned oil cuts despite the Middle East tensions.

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The S&P500 jumped almost 2% to above its 200-DMA, and Nasdaq 100 gained 1.74% and tested its 50-DMA to the upside as the rally in the US sovereign bonds extended to another day. Apple will likely slow the rally in major US indices. Apple shares dived up to 4% in the afterhours trading after announcing that the sluggish Chinese demand for iPhones dented revenue.

Investors will also watch closely the US jobs data. Any strength in job additions or wages growth data could bring bond trades back to earth and remind them that if the US jobs market - and the economy - remains this strong, the Fed could turn hawkish again. But strong jobs data in a context of higher supply is not necessarily inflationary.

Across the Atlantic Ocean, the Bank of England (BoE) kept its interest rate unchanged for the second straight month yesterday and pointed at a gloomy activity. The softer economic outlook and softening BoE expectations are threatening for sterling bulls both against the US dollar and the euro.

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The Federal Reserve (Fed) maintained its interest rates unchanged at this week’s meeting, but improved its growth outlook and left the door open for more tightening. The Bank of England (BoE) is expected to maintain the status quo, as well.

The latest Fed decision was unsurprisingly hawkish and did not impact appetite in US bonds which got a boost from the Treasury’s announcement of a slightly lower-than-expected quarterly refunding auction size for the 3, 10 and 30-year maturity bonds next week. Cherry on top, the US Treasury said that they now expect one more step up in quarterly issuances for the long-term debt, whereas the expectation was multiple more step ups.

The US 10-year yield sank to 4.70% after the Fed decision and Treasury’s much-awaited issuance calendar reveal, the 30-year yield fell to 4.90%. Stocks rallied. AMD and Qualcomm gained after results, Apple is due to reveal its Q3 earnings after the bell.

Elsewhere, gold eased and oil rebounded from a psychological support.

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