Global markets have recently rallied after US inflation data for October came in mildly lower than expected. The annual inflation rate slowed for a 4th month to 7.7% in October, the lowest since January, and below forecasts of 8%, but still well above the Federal Reserve’s desired level.<\/p>\n\n\n\n
Markets may have been pricing in a potential pivot in the US Fed\u2019s monetary policy, hoping the Fed will slow down its rate hikes and raise policy rates by 50 basis points (vs. initially expected 75 basis points) in the last meeting of the year.<\/p>\n\n\n\n
Recall that the Fed implemented four consecutive rate hikes, each lifting the policy rate by 75 basis points. While it is unlikely that the Fed would change gears based on a single data point, we\u2019ve been getting mixed signals from various Fed officials on what\u2019s next.<\/p>\n\n\n\n
Our View:<\/strong> While a slowdown in rate hikes is positive news, we don\u2019t believe it will be enough to reverse the current bear market conditions for equity markets. The lower-than-expected rise in US inflation demonstrates a long runway to meeting the Fed\u2019s target of 2%. We will need to see sustained good news on US CPI data to ascertain price stability.<\/p>\n\n\n\n Money markets also reacted to the October inflation data. However, the pull back in yields was minimal compared to the sharp spike earlier. The more sensitive shorter-term rates\u2019 decline has been slower than the longer-term rates. The yield curve inversion continues to signal the inevitability of a US recession. A US recession will have a major impact on local shores as the US is a major trading partner of the Philippines.<\/p>\n\n\n\n