US OUTLOOK/OPINION: MS At Low End Of CPI Consensus
- Morgan Stanley see core CPI at 0.26% M/M in October (vs 0.32% in September, and 0.3% consensus). “A reading in line with our expectation would be well lower than the ~0.4%M average from January to May, and imply an increase of 0.25%M for October core PCE vs 0.30%M in September.”
- The “main category driving disinflation is core goods, where we expect deflation to continue. For used cars, recent negative prints in leading indicators […] lead us to expect a drop of 1.7%M in October.”
- They see core services decelerating to 0.43% M/M as shelter moves back below 0.5%. "We see housing CPI below 0.5%M in October, coming in at 0.45% and explaining most of the deceleration in services.”
- “Health insurance will update in October and move from an average of about -4%M (Oct-22 to Sep-23) to prints around 0.5% from Oct-23 to Mar-23. This reset adds about 3bp to monthly core inflation prints in the coming months.”
- They see key components to watch as energy, health insurance, housing, and auto insurance.
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USDCAD TECHS: Bearish Outlook Pauses
- RES 4: 1.3862 High Mar 10 and a key resistance
- RES 3: 1.3857 2.0% 10-dma envelope
- RES 2: 1.3805 High Mar 24
- RES 1: 1.3786 High Oct 5
- PRICE: 1.3660 @ 16:23 BST Oct 13
- SUP 1: 1.3569 Low Oct 10
- SUP 2: 1.3514 50-day EMA
- SUP 3: 1.3417 Low Sep 29
- SUP 4: 1.3381 Low Sep 19 and a key support
USDCAD traded higher into the Friday close after a solid Thursday rally. Last week, price breached key resistance at 1.3695, the Sep 7 high. This highlights a bullish theme and a reversal of the recent bearish phase. The break also confirms a resumption of the uptrend that started mid-July. Trendline resistance - at 1.3699 and drawn from the Oct 13 ‘22 high, has also been cleared and is a bullish development. Support is at 1.3514, the 50-day EMA.
US TSYS: Geopol Risk, Mixed UofM Data Buoy Rates
- Middle East conflict lent to Friday morning's risk-off/safe haven bid in US rates. Meanwhile, Russia war with Ukraine enters day 597. Dec'23 10Y futures marked an early session high of 108-00 before slipping back to 107-23.5 ((+16) after the bell; curves bull flattening: 2Y10Y -5.299 at -42.896.
- Tsys pare gains briefly, rebound slightly after University of Michigan data comes out mixed: Sentiment lower (63.0 vs. 67.0 est, 68.1 prior), Current Conditions (66.7 vs. 70.3 est, 71.4 prior), Expectations (60.7 vs. 65.7 est, 66.0 prior). Inflation expectations higher 1 Yr Inflation (3.8% vs. 3.2% est, 3.2% prior), 5-10Y (3.0% vs. 2.8% est, 2.8% prior).
- "After stabilizing earlier this year, concerns about inflation have grown again. These concerns underpin the sharp 15% deterioration in consumers’ assessments of their personal finances in this month. About 49% of consumers reported that high prices are eroding their living standards, up substantially from 39% last month and matching the all-time high last recorded in July 2022. Consumers pointed specifically to prices of food and groceries (highest share in over a year) as well as gas and fuel (highest in 2023)."
- Projected rate hikes into early 2024 consolidating: November holding at 7.8%, w/ implied rate change of +1.9bp to 5.348%, December cumulative of 8.3bp (10.6bp late Thu) at 5.412%, January 2024 cumulative 8.1bp (10.6bp late Thu) at 5.410%. Fed terminal at 5.438% in Jan'24. Fed terminal at 5.41% in Jan'24-Feb'24.
- Focus on Monday Data Calendar: Empire Mfg, Fed Speak, Tsy Bill Sales. Q4 equity earnings resume with Charles Schwab Monday; Bank of NY Mellon, Bank of America, Goldman Sachs on Tuesday.
AUDUSD TECHS: Trend Outlook Remains Bearish
- RES 4: 0.6630 High Aug 2
- RES 3: 0.6616 High Aug 16
- RES 2: 0.6522 High Aug 30 and Sep 1, and the key resistance
- RES 1: 0.6445/6501 High Oct 11 / High Sep 29
- PRICE: 0.6294 @ 16:22 BST Oct 13
- SUP 1: 0.6287 2.00 proj of the Jun 16 - Jun 29 - Jul 13 price swing
- SUP 2: 0.6272 Low Nov 3 2022 and a key support
- SUP 3: 0.6215 2.236 proj of the Jun 16 - Jun 29 - Jul 13 price swing
- SUP 4: 0.6170 Low Oct 13 2022 and a key support
AUDUSD remains bearish following the recent breach of support at 0.6331, despite the broad strength posted across the early half of the week. Last week’s break of support confirmed a range breakout and a resumption of the downtrend that started early February. This signals scope for 0.6215 next, a Fibonacci projection. On the upside, key trend resistance is at 0.6522, the Aug 30 and Sep 1 high. Short-term gains are considered corrective.
