Even though the US government shutdown is still underway, marking 22 consecutive days without the passage of legislative funding for financing the federal government, market participants rejoice as they will apprehend the first crucial piece of economic data and draw their best conclusions, as to how the Federal Reserve will proceed in its upcoming policy decisions.

So far, markets have been on a data-restrictive diet, with information about consumer spending trends, employment, productivity and growth, been postponed until further notice amidst the shutdown, being indirectly forced to speculate on the state of the economy, but the wait will come to an end later on today with the release of September’s CPI report.

The CPI print will shed light onto how price pressures progressed across the United States, giving possible clues as to how policymakers will decide to deploy their policy strategy onwards. Market participants have already positioned themselves in money markets, betting with 97% certainty that the Fed will slash its policy rate by 25bps in next week’s decision and analysts note that today’s CPI print will do little to change or overturn such expectation.

Expectations see the year-on-year headline CPI reading up ticking by 0.2% from 2.9% to 3.1% in September, whereas the core rate is seen standing still and unchanged at the 3.1% level, showcasing the sticky nature of inflationary pressures and confirming the worries from some pundits that the US economy lies in a stagflationary environment.

In the event that we observe a print showcasing that inflation rose at a faster pace than what the market anticipated, we would reasonably expect to see the greenback receiving inflows and on the contrary US equity futures head lower, as fears for reignition would in theory keep policymakers somewhat hesitant at lowering excessively rates in the foreseeable future. On the contrary, a cooler than expected print will most likely accelerate the Fed’s rate cut path, aiding US equities higher, whereas the greenback facing pressure in the FX market.

Technical Analysis

S&P500 Chart – S&P500 equity futures rally towards record high in premarket, ahead of CPI data

Resistance: 6775 (R1), 6900 (R2), 7000 (R3)
Support: 6660 (S1), 6500 (S2), 6370 (S3)