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Overnight news: On October 16, 1. Chicago Fed President Goolsbee stated: If inflation stems from AI-driven demand overheating, that would be more concerning; Cleveland Fed President Hammack stated: The Fed may need to raise rates more aggressively. San Francisco Fed President Mary Daly stated: Currently, inflation risks are entirely skewed to the upside.
ATFX Commentary: Three Fed governors released hawkish views on the same day, and market rate hike expectations continue to heat up. Goolsbee's view is relatively novel, as most market participants blame high inflation risk on rising international energy prices, while he attributes it to AI expansion causing demand overheating. We believe that rising international energy prices are a short-term inflation driver — strong, but not permanent. Capital expenditure by tech companies, while massive in scale, is concentrated in AI hardware areas such as HBM, chips, and power, and its impact on inflation is not broad-based, though it benefits from strong persistence. The remarks by Hammack and Daly are largely consistent with other hawkish Fed governors, all leaning toward using more aggressive rate hikes to curb potential high inflation risks. Fed Chairman Kevin Warsh also holds a hawkish rate hike view.
2. Houthi armed forces launched 6 ballistic missiles at the presidential palace in Aden, the temporary capital of southern Yemen.
ATFX Commentary: The conflict between Yemen and Saudi Arabia has not yet ceased, and internal problems in Yemen are beginning to surface. The Strait of Hormuz remains blockaded, and the blockade of the Bab-el-Mandeb Strait may intensify. The supply side of the international energy market remains tight, and the potential downside for WTI and Brent crude is limited.
3. The U.S. September PPI annual rate was 6.3%, higher than the previous value of 5.6% and above the expected 5.3%; U.S. initial jobless claims for the week ending October 10 were 199,000, roughly in line with the previous value of 198,000 and the expected 200,000.
ATFX Commentary: PPI data transmits to CPI data. The significant rise in September PPI annual rate means October CPI is likely to come in above the previous value. Initial jobless claims remain stable, and the U.S. employment market provides sufficient room for rate hikes. If considering only macroeconomic data, Fed rate hikes can both curb high inflation and avoid disrupting the employment market — almost achieving a win-win. Of course, increased U.S. Treasury bond interest expenses and declining U.S. equity valuations due to a tightening monetary policy environment are factors that need to be comprehensively considered.
Overnight Market Performance
1. WTI crude oil rose 2.59% overnight, but opened with a gap down today, nearly erasing all gains. London gold rose 1.59%, with a mid-term trend leaning toward consolidation. The U.S. dollar index fell sharply yesterday, breaking below the 102.00 integer mark. EURUSD benefited and moved higher, with the latest price at 1.1219, rebounding 106 basis points from this week's low of 1.1113.
ATFX Commentary: WTI crude oil has closed with positive candles for six consecutive trading days, with a relatively strong short-term uptrend. Today's gap-down open is insufficient to change the trend-following bullish structure. Although the hawkish remarks from three Fed governors are bullish for the dollar index, the situation of a falling dollar and appreciating euro indicates that the market lacks confidence in the Fed adopting more aggressive rate hike policies. In a high-interest-rate environment, gold will struggle to stage an impressive rally, and the current sideways consolidation reflects market funds testing the Fed's next move.
Today's Focus:
1. Eurozone September CPI annual rate final reading, Fed Chairman Kevin Warsh's speech, Bank of Canada Governor Macklem's speech.
ATFX Commentary: The Eurozone CPI data itself is of high importance, helping to assess the inflation situation in the Eurozone. However, the final reading is released relatively late, and the market's focus is on the preliminary CPI data. Fed Chairman Kevin Warsh will speak today during the Asian session at the IMF Annual Meeting held in Bangkok and hold a fireside chat with IMF Managing Director Georgieva. Focus on his remarks regarding inflation and the rate path. The Bank of Canada Governor will attend the IMF Annual Meeting today and participate in a panel discussion. Focus on his remarks regarding U.S.-Canada trade relations and the monetary policy path.
ATFX Risk Warning, Disclaimer, and Special Statement: Markets carry risks, and investment requires caution. The above content represents only the analyst's personal views and does not constitute any operational advice. Please do not treat this report as your sole reference. At different times, the analyst's views may change, and updated content will not be separately notified.
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