INDIA: October CPI Reading Likely Marked Bottom in Headline Inflation
Nov-13 11:08
Data yesterday showed headline CPI inflation declined to an all-time low of +0.25% Y/Y in October, a touch below analyst estimates (Est: +0.40%), driven primarily by continued food deflation. Core inflation (which excludes food and fuel) moved higher to +4.4% Y/Y amid higher gold inflation which offset the decline in core goods inflation from the pass-through of GST cuts. Among sell-side, analysts expect the October print to mark the bottom in headline inflation, while the outcome of the Dec 5 RBI meeting lacks clear consensus.
- Commerzbank note that the RBI is expected to leave rates unchanged at 5.50% near term, but say the benign inflation backdrop gives it room to cut if required. They add that the INR has been on the backfoot this year and is down over 3% vs USD year-to-date. Commerzbank expect the RBI to favour a relatively stable USD/INR and they project it at around 89.00 by end-2026.
- Goldman Sachs say the October CPI print was likely the bottom in headline inflation. Their preliminary estimate for November headline inflation is +0.9% Y/Y, with food prices tracking a sequential increase of +1.1% in seasonally adjusted terms till Nov 11 implying -2.4% Y/Y due to favourable base effects. In their view, the majority of the pass-through of lower GST rates has already been reflected in consumer prices for most products (except staples).
- JP Mogan note that with the favorable base effect continuing, November inflation is tracking at just +0.6% Y/Y. More broadly, headline inflation is projected to remain very low until December. Only after the base effect wanes in 4Q25 is CPI inflation expected to firm up. Reflecting the softness in inflation for FY26, CPI inflation is expected to average just 2.1%, compared to 4.6% in FY25.
- MUFG had already been saying that RBI’s inflation forecasts of 2.6% for FY2026 and 4% for end of the fiscal year looks too high and would likely be revised down even before the October inflation print came out, and they say this looks to be the case post the inflation numbers. Overall, MUFG think that a 25bp December cut looks likely, but they add that a shift to accommodative stance is probably unlikely for now given that the full impact of GST rate cuts and tariffs on growth is not entirely clear.
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US TSYS: 10Y Yields Probe 4.00% In Broad Have Demand
Oct-14 11:06
- Treasuries trade firmer across the curve in further reaction to US-China trade tensions which continued overnight.
- Headlines confirmed that China were ratcheting higher their controls on rare earth exports. On a related note from the WSJ: “People close to the Trump administration say the U.S. side likely will demand that China rescind, not merely delay or water down the rare-earth export rule”.
- Cash trading has resumed after yesterday’s Columbus Day holiday although futures saw a full session.
- Today sees early focus on earnings before Powell’s economic update headlines the session, whilst markets will firmly be on headline watch for US-China trade prospects. Note also the holiday-compressed bill issuance calendar.
- A solid earnings schedule is being digested, with recent results from Blackrock, JPMorgan, Wells Fargo leading financials plus Johnson & Johnson. GS (expected 0730ET) and Citi (expected 0800ET) are still to come.
- Cash yields are 2-4bp lower, with 3s leading declines and 20s lagging.
- 10Y yields currently at 4.003% (-2.9bp) have seen support at 4.00%, briefly hitting 3.9976% having last been sub 4% briefly on Sep 17 and Sep 11. 10Y yields were last more materially sub-4% in early April under reciprocal tariff deliberations.
- TYZ5 trades at 113-16 (+11) on strong cumulative volumes of 550k.
- An earlier high of 113-17+ sits as the latest initial resistance level, building on Friday’s clearance of 113-00 as it increasingly looks to the bull trigger at 113-29 (Sep 11 high). Support meanwhile is seen at 112-15 (50-day EMA).
- Data: NFIB for Sept already published, Weekly Redbook retail sales (0855ET)
- Fedspeak: Bowman (0845ET), Powell (1220ET), Waller (1525ET), Collins (2030ET), Goolsbee (time unknown)
- Bill issuance: US Tsy $86B 13W & $77B 26W bill auctions (1130ET), $95B 6W bill auction (1300ET)
- Politics: Trump in bilateral lunch with Argentina President (1315ET), Trump in Charlie Kirk ceremony (1600ET)
JAPAN: Jiji Press-LDP's Takaichi Seeks Meetings w/Opposition Leaders On 15 Oct
Oct-14 11:05
Jiji Press reports that governing Liberal Democratic Party (LDP) President Sanae Takaichi is seeking individual meetings with the leaders of the three main opposition parties on Wednesday, 15 October, as she seeks to gain support to ensure her election as prime minister. Meetings have/are taking place today between officials from the conservative LDP, as well as the liberal Constitutional Democratic Party (CDP), the libertarian-federalist Japan Innovation Party (Ishin), and the conservative populist Democratic Party for the People (DPFP).
- For the LDP's Takaichi, her tasks are clear: secure the support of at least one opposition party to ensure her election as prime minister in the 21 October extraordinary Diet session, and ensure that she has the requisite support to govern as a minority administration.
- A 'grand coalition' with the CDP would comfortably cross the majority thresholds in both chambers, but given the CDP's position as the main opposition and major policy differences, this is the least likely scenario.
- Gaining the backing of just one of Ishin or the DPFP would effectively secure Takaichi's elevation to PM. The mainstream opposition parties combined seat total would be short of the LDP plus Ishin/DPFP, and there is little-to-no chance of the minor far-left and far-right parties uniting behind a single candidate, meaning Takaichi would win in a run-off.
- The more difficult task would come in governing. Either the LDP governs as a single-party minority, relying on opposition support on a bill-by-bill basis, or seeks a coalition with both Ishin and the DPFP in order to secure a majority in both chambers.
OUTLOOK: Price Signal Summary - Bear Cycle In Oil Futures Intact
Oct-14 10:55
- On the commodity front, a bull cycle in Gold remains intact and the very strong start to this week’s session reinforces current conditions. The move higher maintains the price sequence of higher highs and higher lows. Sights are on the $4200.00 handle, and $4239.7, the 3.000 projection of the May 15 - Jun 16 - 30 price swing. Note that the trend is in overbought territory. A move down would be considered corrective and would allow the overbought set-up to unwind. Support lies at $3862.6, 20-day EMA.
- In the oil space, a bearish theme in WTI futures remains intact. Last Friday’s move down confirmed a resumption of the bear leg - support at $60.40, the Oct 2 low, has been breached. This highlights an extension of the bearish price sequence of lower lows and lower highs and the move down opens $57.50 next, the May 30 low, and $54.89 further out, the May 5 low. On the upside, initial key resistance is at $66.42, the Sep 29 high. Clearance of this level would highlight a reversal. First resistance is at $62.62, the 50-day EMA.
