Please see below the daily investment bulletin from Brooks Macdonald, which looks at the US Midterm Elections and expectations regarding today’s (10/11/2022) US CPI report. Received this morning – 10/11/2022.
What has happened
US equities struggled yesterday after a solid run of gains, with the headline US index down over 2% on the day. European equities posted small losses with sentiment boosted by news that Russian troops were withdrawing from the Ukrainian city of Kherson.
Midterm elections
With the midterm elections significantly closer than many commentators had expected, the last remaining states will determine the victors in the House of Representatives and the Senate. Electoral models still suggest that the Republicans will take the House but by a far smaller margin than previously expected. Within the Senate, one of the remaining seats is Georgia, where no candidate received the 50% needed to avoid a run-off race which will now take place on 6th December. Should the other remaining two Senate seats be split between the two parties, the Georgia race will determine control of the Senate, as it did in 2020. With Republican Ron DeSantis one of the strong performers of the midterms, speculation is building that he will announce shortly that he will run for President in 2024.
US CPI
Later today will see the release of the US CPI report which remains the most important of the monthly data releases. The report last month catalysed a broad sell-off in risk assets as core CPI surpassed economist expectations. This month the market is expecting a 0.6% month-on-month gain in the headline CPI report which would bring the year-on-year number down to 8% from 8.2%. The core month-on-month number is expected to ease slightly, coming in at 0.5%, which would bring the year-on-year figure to 6.5% rather than 6.6%.
What does Brooks Macdonald think
The importance of today’s CPI report is clear, with bond investors looking for signals as to whether US inflation has peaked and is starting to plateau. Before the next Federal Reserve meeting we have today’s release and one in December, therefore today’s report will have less of a direct follow through to Fed policy than previous months. That said, market pricing will rapidly incorporate the latest change in US price pressures, although investors should be cautious of extrapolating today’s datapoint too far into the future given the uncertainty and volatility of US inflation in 2022 so far.
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Cyran Dorman
10th November 2022