Weekly Outlook: Will CPI Support the Fed's Slowing Rate Cut Pace, Is Gold About to Break Out of Consolidation?

Due to the far better-than-expected non-farm payroll report highlighting the resilience of the U.S. economy and boosting hopes for a soft landing, traders have readjusted their bets on the size of the next Fed rate cut.

The three major U.S. stock indexes all recorded four consecutive weekly gains, with the Dow hitting a record high close. The bond market calmed worries about an economic recession, with the yield on the two-year U.S. Treasury note, sensitive to policy changes, surging more than 20 basis points to 3.93%, its highest level since August 26. The U.S. dollar index rose for the fifth consecutive day to a seven-week high. Gold saw its first weekly decline in a month, but safe-haven demand limited its downside. Silver continued to hit highs not seen since December 2012. While tensions in the Middle East led to the largest weekly gain in international oil prices in over a year, Biden's advice to Israel not to target Iranian oil facilities caused some retracement.

In the upcoming week, investors will focus on the Fed meeting minutes, U.S. inflation data for September, and the earnings reports of major banks led by JP Morgan.

Here are the key points that the market will focus on in the new week (all times are in Beijing time):

Central Bank Dynamics: Will the catalyst for the breakthrough in gold prices be in place with the full mobilization of Fed officials?

Federal Reserve:

Tuesday 1:05, 2026 FOMC voter and Minneapolis Fed President Kashkari participates in a Q&A session at the Bank Holding Company Association's fall seminar;

Tuesday 6:00, 2024 FOMC voter and Atlanta Fed President Bostic delivers a speech;

Tuesday 6:30, 2025 FOMC voter and St. Louis Fed President Bullard speaks on economic outlook and monetary policy;

Tuesday 15:00, Fed Governor Quarles speaks at a conference hosted by the European Central Bank;

Wednesday 0:45, 2024 FOMC voter and Atlanta Fed President Bostic speaks on economic outlook;

Wednesday 4:00, 2025 FOMC voter and Boston Fed President Rosengren speaks at a community bank conference;

Wednesday 20:00, 2024 FOMC voter and Atlanta Fed President Bostic delivers welcoming remarks at an event;

Wednesday 21:15, 2026 FOMC voter and Dallas Fed President Kaplan speaks on the current economic situation;

Wednesday 22:30, 2025 FOMC voter and Chicago Fed President Evans delivers opening remarks at the Chicago Payments Symposium;

Thursday 0:15, 2024 FOMC voter and Richmond Fed President Barkin delivers a speech;

Thursday 2:00, Fed releases minutes of the monetary policy meeting;

On Thursday at 5:00, Colin Collins, FOMC voter and President of the Federal Reserve Bank of Boston, will deliver a speech;

On Thursday at 6:00, Mary Daly, FOMC voter and President of the Federal Reserve Bank of San Francisco in 2024, will deliver a speech;

On Thursday at 22:30, Thomas Barkin, FOMC voter and President of the Federal Reserve Bank of Richmond in 2024, will participate in a fireside chat;

On Thursday at 23:00, John Williams, permanent voter of FOMC and President of the Federal Reserve Bank of New York, will deliver a speech on economic outlook and monetary policy and participate in discussions;

On Friday at 21:45, Charles Evans, FOMC voter and President of the Federal Reserve Bank of Chicago in 2025, along with Fed Governor Bowman, will attend the 18th Annual Community Bankers Symposium;

On Friday at 22:45, Robert Kaplan, FOMC voter and President of the Federal Reserve Bank of Dallas in 2026, will participate in an expert panel discussion;

U.S. employers added 254,000 jobs in September, the highest level in six months, and the unemployment rate unexpectedly declined. In addition to Friday's labor market report, a series of other economic data this week—including private sector employment numbers and service sector indicators—paint a strong picture of the U.S. economy.

Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, said, "Following a series of relatively soft employment data in the summer, the September employment report is just what the Fed wanted, breaking recent trends and providing optimistic reasons for the labor market to maintain resilience." He added that while the report won't change the economic outlook, it should ease any concerns investors or the Fed may have about the job market. Earlier this week, Fed Chair Powell said he doesn't want to see further weakness in the labor market. One of the main reasons the Fed decided to cut rates by 50 basis points last month was the slowdown in hiring and the earlier rise in the unemployment rate this year.

The Fed's megaphone said, the nonfarm payrolls report could close the door on another 50 basis point rate cut by the Fed next month. Traders have nearly wiped out bets on a significant rate cut by the Fed in November, with Morgan Stanley and Bank of America lowering their expectations from 50 basis points to 25 basis points.

Not all investors are optimistic about Friday's jobs report. Allianz's Chief Economist, El-Erian, warned that this means the Fed's fight against inflation is not over. "This is not just a strong labor market, but if you look at these numbers on the surface, this is a strong labor market in the late cycle." Lindsey Bell, Chief Investment Strategist at 248 Ventures, said that the wage growth reflected in the report could remind the Fed that inflation will remain sticky.

Charles Evans, President of the Federal Reserve Bank of Chicago, said on Friday that the latest U.S. nonfarm payrolls report was "excellent" and that more similar labor market data would boost his confidence in the economy being at full employment and low inflation. He believes that it is appropriate for the Fed to continue cutting rates over the next 12 to 18 months, which is also the current expectation of most policymakers Jerome Powell hinted earlier this week that the pace of interest rate cuts may slow down. He stated that if economic data continues on its current trajectory, there may be two more rate cuts this year, each by only 25 basis points. The upcoming FOMC meeting minutes next week and speeches by Federal Reserve officials may provide more clues.

Despite the reduced bets on Fed rate cuts, gold remains strong supported by geopolitical tensions. Analysts point out that for gold, economic data has taken a back seat to geopolitical uncertainties. FXTM research analyst Lukman Otunuga stated, "Technically, gold remains within a range on the daily chart, with support at $2630 and resistance at $2675. A breakout may be imminent, with events in the coming week serving as potential catalysts, including ongoing geopolitical tensions, key data such as U.S. CPI, and numerous speeches by Federal Reserve officials."

Independent precious metals analyst and founder of BubbleBubble Report, Jesse Colombo, mentioned that despite gold still trading below $2700 per ounce, the fact that investors continue to buy on dips indicates that gold is still in a strong bull market. He explained that with rising geopolitical uncertainties and the implementation of a new round of Fed easing, global liquidity is increasing, making gold an attractive asset. The continuous rise in global debt also enhances gold's monetary properties. He said, "There is not just one factor driving the gold bull market, which is why this rebound is unstoppable. While many say gold is technically overbought and needs a 5% or 10% correction, it is actually just consolidating. To me, this is very optimistic."

Other Central Banks:

On Tuesday at 8:30, the Reserve Bank of Australia released the minutes of its September monetary policy meeting;

On Wednesday at 9:00, the Reserve Bank of New Zealand announced its interest rate decision and monetary policy assessment report;

Last week, China decided to take bold stimulus measures to boost economic activity, benefiting the New Zealand Dollar against the U.S. Dollar. However, the latest wave of risk aversion and the rebound of the U.S. Dollar led to its pullback.

Next week, the Reserve Bank of New Zealand will be driving the direction of the New Zealand Dollar. The last time RBNZ policymakers met was on August 14th, when they cut rates by 25 basis points and hinted at more cuts as inflation was expected to remain near the midpoint of the bank's 1-3% target range.

Subsequently, data showed a larger-than-expected decline in retail sales in the second quarter in New Zealand, although overall GDP growth was better than expected, it still showed a contraction. After the economy slipped into a recession in the second half of 2023, first-quarter data was revised down, showing a slight growth of 0.1%. Now investors believe that the RBNZ will cut rates by 50 basis points next week and another 50 basis points in November. This means that the risk for the New Zealand Dollar may lean towards the upside. If officials do indeed cut rates again and signal a more aggressive easing policy, this will confirm market expectations, therefore, the New Zealand Dollar is unlikely to depreciate significantly

Important Data: Will CPI Data Unexpectedly Rise, Leading to a Dollar Rebound?

Monday 17:00, Eurozone August Retail Sales MoM;

Tuesday 18:00, US September NFIB Small Business Confidence Index;

Wednesday 14:00, UK August CPI MoM, UK August Retail Price Index MoM;

Wednesday 22:30, US EIA Crude Oil Inventories up to October 4th;

Thursday 20:30, US September Unadjusted CPI YoY, MoM;

Thursday 20:30, US Initial Jobless Claims up to October 5th;

Friday 14:00, UK August Three-Month GDP MoM, UK August Manufacturing Output MoM;

Friday 20:30, Canada September Employment Change;

Friday 20:30, US September PPI YoY, MoM;

Friday 22:00, US October 1-Year Inflation Rate Expectation Preliminary, US October University of Michigan Consumer Sentiment Index Preliminary;

There may be some upward risks in the US September CPI data next Thursday, especially the core CPI. According to the preliminary Global Purchasing Managers' Index by S&P, business procurement prices have risen at the fastest pace in 6 months. Despite a decline in the ISM Manufacturing Survey, the non-manufacturing report confirms the acceleration of price pressures.

Therefore, if the data shows some stickiness in inflation, more investors may believe that the Fed will proceed as planned, cutting rates by 25 basis points in November and December. This could add more fuel to the dollar's rebound.

CPI options have priced in the possibility of an unexpected rise in data, with an expected 2.36% year-on-year increase and a 0.15% month-on-month increase for September CPI. Rounded off, these two figures would reach 2.4% and 0.2% respectively, higher than the consensus of 2.3% and 0.1%. This could reinforce bets on the Fed slowing down the pace of rate cuts, pushing the dollar higher, especially against the yen, which has depreciated significantly recently. The Relative Strength Index (RSI) for the USD/JPY has been on an upward trend, indicating a rising momentum, breaking 147 could potentially push the currency pair up to 149.25 in the short term.

Among major currencies, the pound has performed the best so far this year. However, due to Bank of England Governor Bailey's comments in an interview with The Guardian suggesting they may be "more aggressive" on rate cuts if data continues to show progress in inflation, the pound suffered a heavy blow this week. The market now almost entirely believes the central bank will cut rates by 25 basis points in November, with a 65% chance of another rate cut in December.

The pound's next test may come from the August GDP monthly data released on Friday, which will be accompanied by industrial and manufacturing productivity, as well as trade data for the month. A set of disappointing data could increase the credibility of Bailey's remarks and prompt traders to push down the pound **

Important Event: Israel is preparing for retaliatory strikes, oil tankers evacuate key Iranian oil ports

The oil market is preparing for potential Israeli retaliation against Iran. After reports of Biden trying to prevent Israel from attacking Iranian oil facilities surfaced on Friday, oil prices fell. Analysts at Morgan Stanley stated that with a month left until the U.S. election, the Biden administration hopes to avoid a rise in oil prices, making it unlikely for the White House to approve an attack on Iranian oil facilities. Therefore, "we believe this will not be Israel's preferred course of action, but a secondary or even tertiary response to potential escalation of attacks by Iran."

Rhett Bennett, CEO of Black Mountain operating in the U.S. Permian Basin, believes that the increase in U.S. production helps alleviate the fear premium in the oil market. He said, " Supplies from the U.S., along with healthy idle capacity within OPEC, are reasons why the market may overlook severe supply shocks, regardless of whether the situation in the Middle East continues to escalate."

OPEC + oil-producing countries currently have a total production cut of 5.86 million barrels per day. Analysts estimate that Saudi Arabia can increase production by 3 million barrels per day, and the UAE can increase production by 1.4 million barrels per day.

However, other analysts are not as optimistic. UBS analyst Giovanni Staunovo stated that although OPEC + has enough idle capacity to compensate for the loss of Iranian supply, most of this capacity is located in the Gulf region, which could be affected if the conflict escalates further.

So far, Israel has not attacked Iran's oil facilities. Oil analysts and security experts say that Israel may target Iran's refineries and the crucial Kharg Island oil port. The Kharg Island oil port handles about 90% of Iran's crude oil exports. CNBC reported on October 4th that satellite images show that, due to concerns about Israeli retaliation against Tehran's energy infrastructure, many oil tankers have evacuated the waters around the Kharg Island oil port.

Several energy analysts predict that if Israel attacks the port, international oil prices could immediately surge by up to 5%; if Iran's energy infrastructure is attacked, about 4% of global oil supply is at risk, as Iran is one of OPEC's largest oil-producing countries.

Helima Croft, an analyst at RBC Capital Markets, further warned that if the current crisis escalates into a full-scale war, Iran and its proxies may also target the energy operations of other oil-producing countries in the region to internationalize costs. In 2019, Iranian proxies briefly disrupted 50% of Saudi Arabia's crude oil production with drone attacks on Saudi oil processing facilities.

Analyst Tamas Varga from oil broker PVM also stated, "If the situation escalates, Iran's proxies may launch attacks against oil-producing countries in the Middle East, namely Saudi Arabia." Since 2019, Saudi Arabia and Iran have achieved a political rapprochement, which has helped ease regional tensions, but their relationship remains difficult

Company Financial Reports: A new round of financial reporting season is about to kick off, can the soft landing narrative continue to dominate the US stock market?

The new round of US corporate financial reporting season will start next week, with Morgan Stanley, Fidelity Bank, and BlackRock announcing their performance on October 11th. Bullish investors hope that the performance will prove that the high valuation of the US stock market near record highs is justified.

According to data from LSEG Datastream, the forward 12-month P/E ratio of the S&P 500 index is 21.5 times, close to the highest level in three years, far above its long-term average of 15.7 times. Sameer Samana, Senior Global Market Strategist at Fidelity Bank Investment Research Institute, said, "One of the few reasons bulls can provide for high valuations is that profit growth has been at high levels. As prices rise, profit growth may indeed need to be much better than expected."

Bryant VanCronkhite, Senior Portfolio Manager at Allspring Global Investments, stated that bank performance provides an important perspective on the economy, including default conditions and loan demand. More broadly, VanCronkhite will look for signs that the Federal Reserve's 50 basis point rate cut at last month's monetary policy meeting has had an impact on the economy through channels such as increased car sales and other bulk purchases. Ideally, even with the release of a strong employment report on Friday and a decrease in expectations for further rate cuts, such activities will continue. VanCronkhite said that after the first rate cut, companies will show that leading demand indicators are strengthening. "This may make me believe that we are moving towards a soft landing," he said.

With further strengthening expectations of a soft landing for the US economy, Wall Street analysts are even more optimistic. David Kostin, Chief US Equity Strategist at Goldman Sachs, stated that considering the expected profit growth for 2025, the 12-month target for the S&P 500 index has been raised from 6000 points to 6300 points.

Market Closure Schedule:

Wednesday, due to Hangul Day, the Korea - Seoul Stock Exchange will be closed for one day;

Thursday, due to Double Tenth Day, the China - Taiwan Stock Exchange will be closed for one day;

Friday, due to Double Ninth Festival, the China - Hong Kong Stock Exchange will be closed for one day, and the Southbound and Northbound trading will be suspended