What a wild week it has been!  On Thursday, markets saw a 7.4% move higher in the Nasdaq 100 and a 545 pip move lower in USD/JPY. Why?  Because the US CPI report for October was 7.7% YoY vs an expectation of 8% YoY.  Markets took this to believe that the Fed will pivot in December and “only” hike rates by 50bps, slowing its pace of hikes from 75bps.  More volatility should be ahead this week as CPI data is released from the UK and Canada. Also, crypto exchange FTX has filed for bankruptcy.  What does that mean for cryptocurrencies?  In addition, the Pound may see volatility as the UK Fiscal Statement is released.  How much austerity will UK Chancellor Hunt propose?  And, it’s still earnings season.  Watch this week as large retailers such as Target and Walmart report.

CPI

Has US inflation peaked?  US CPI released on Thursday showed that YoY October inflation was 7.7%, lower than the 8% expected and lower than the 8.2% reading from September.  Since June, the monthly readings have been 9.1%, 8.5%, 8.3%, 8.2%, and 7.7%.  The headline print is heading in the right direction.  The Core CPI print was 6.3% YoY vs 6.5% YoY expected and a 6.6% YoY reading in September (which was the highest reading in 40 years).  Although markets may have overacted a bit, US stock markets showed big gains across the board as the US Dollar traded much lower, with the DXY down nearly 3.85% on the week.

Traders are now asking if other countries’ CPI prints will come out weak as well.  Last week, in addition to the US CPI release, China’s inflation rate dropped to 2.1% YoY for October vs an expectation of 2.4% YoY and a September reading of 2.8% YoY. On Wednesday, markets will get CPI data from both Canada and the UK.  The UK is expecting inflation to rise to 10.6% YoY vs a September reading of 10.1% YoY.  BOE Governor Bailey said he expects to see inflation peak at 10.9%.  The core reading is expected to fall to 6.4% YoY from 6.5% YoY. Could we see higher than 10.6% this week?  In addition, Canada is expected to see it’s October CPI unchanged from September’s reading at 6.9% YoY.  If either of these prints are higher than expected, their respective currencies could continue to go bid vs the US Dollar, as inflation in the US is moving in the opposite direction.

Crypto and FTX

What the heck is going on in the crypto space?  Wednesday morning’s headlines were not full of outcomes from the US mid-term elections.  The headlines all had to do with the crypto-exchange FTX failing to meet withdrawal requests and a liquidity crunch ensued.  Some feared the worst, and still do, that this may be the end for cryptocurrencies.  BTC lost nearly 20% this week, while ETH lost nearly 19%.  As of the end of the week, FTX filed for bankruptcy and cryptos are still trading.  However, as investigators go down the rabbit hole, new questions will arise that can either send cryptos lower or help to stabilize the market.   Who are the large investors in FTX and how much did they lose? Will other crypto exchanges follow the same demise as FTX?  Will the SEC and CFTC finally jump into the crypto markets and establish regulations?  Watch for more as the story continues to unfold this week!

UK Fiscal Statement

After the Truss administration failed to induce confidence with her mini-budget proposal, the release of the Autumn statement had been pushed from October 31^st to November 17^th.  This delay gave more time to new British PM Sunak and Chancellor Hunt to determine how they would try and fill a gaping fiscal deficit of 35 billion Pounds.  Have they succeeded?  Some of the proposals that have been thrown around include increasing capital gains taxes, raising the top rate of income tax to 50%, and a windfall tax on oil and gas companies. Some Tories have balked at rumors, suggesting that the plan is too aggressive.  Will Sunak cut back on some of initial plans?   Markets will find out the plan on Thursday.

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Earnings

This week, the focus turns to US big box retailers, such as Walmart and Target.  Traders will be watching to see if margins improved, as inflation may have caused shoppers to change their shopping habits.  In addition, have inventory levels been reduced enough so that these retailers no longer have to slash prices and offer deep discounts?  The focus will quickly turn from current results to the outlook for the holiday season! Are retailers ready? Other earnings due out this week are as follows:

TGT, HD, WMT, LOW, NVDA, CSCO, BABA, AMAT, BJ, KSS, M, GPS, JD

Economic Data

In addition to the above-mentioned CPI data due out this week, there are a host of other data reports that will be released. These include UK and Australia jobs data, a China data dump on Tuesday, and Retail Sales from the US and UK.  Other important data releases due out this week are as follows:

Monday

• New Zealand: Services NZ PSI (OCT)
• EU: Industrial Production (SEP)

Tuesday

• China: GDP Growth Rate Prel (Q3)
• Australia: RBA Meeting Minutes
• China: Industrial Production (OCT)
• China: Retail Sales (OCT)
• China: Fixed Asset Investment YTD (OCT)
• China: Unemployment Rate (OCT)
• Japan: Industrial Production Final (SEP)
• Japan: Capacity Utilization (SEP)
• China: PBOC 1-Year MLF Announcement
• UK: Claimant Count Change (OCT)
• EU: Trade Balance: (SEP)
• EU: Employment Change Prel (Q3)
• EU: GDP Growth Rate 2^nd Est (Q3)
• Germany: ZEW Economic Sentiment Index (NOV)
• US: PPI (OCT)
• US: NY Empire State Manufacturing Index (NOV)

Wednesday

• Japan: Machinery Orders (SEP)
• Australia: Wage Price Index (Q3)
• China: House Price Index (OCT)
• UK: Inflation data (OCT)
• Canada: CPI (OCT)
• US: Retail Sales (OCT)
• US: Industrial Production (OCT)
• US: Manufacturing Production (OCT)
• US: Business Inventories (SEP)
• US: NAHB Housing Market Index (NOV)
• Crude Inventories

Thursday

• UK: Fiscal Statement
• New Zealand: PPI (Q3)
• Japan: Trade Balance (OCT)
• Australia: Employment Change (OCT)
• EU: CPI Final (OCT)
• US: Housing Starts (OCT)
• US: Building Permits Prel (OCT)
• US: Philadelphia Fed Manufacturing Index (NOV)
• US: Kansas Fed Manufacturing Index (NOV)

Friday

• Japan: CPI (OCT)
• UK: Retail Sales (OCT)
• Canada: Retail Sales (SEP)
• Canada: New Housing Price Index (OCT)
• Canada: PPI (OCT)
• US: Existing Home Sales (OCT)

Chart of the Week: USD/JPY Daily

Source: Tradingview, Stone X

Of all the charts to chose from this week due to monstrous moves, the USD/JPY chart shows one of the biggest moves for an asset this week.  The pair is down over 800 pips on the week, or 5.5%.  The BOJ must be extremely happy with this move, as Japan didn’t have to buy spend anything to strengthen the price of the Yen.  On Thursday alone, USD/JPY lost 545 pips and on Friday it lost another 250 pips.  Will it continue to move lower? After breaking through horizontal support and the upward sloping trendline of the long-term channel, the pair is nearing the first level of support at the 38.2% Fibonacci retracement level from the lows of March 4^th to the highs of October 21^st at 137.70.  Below there, support crosses at the highs of August 8^th at 135.58, then the 50% retracement level from the previously mentioned timeframe at 133.30.  However, notice that the RSI is in oversold territory. After falling 800 pips, the pair may be ready for a corrective bounce.  First resistance is at the lows of November 10^th at 140.19.  Above there, the next resistance isn’t until the lows of October 5^th at 143.52, then the lows from October 27^th at 145.10.

Will the volatility from last week slow down?  With CPI data due out from Canada and the UK, chances are that it may continue.  In addition, the PM Sunak and Chancellor Hunt will be releasing the UK fiscal budget on Thursday. There are still many unknowns, but will Hunt ““overdo”” it with tax hikes?  In addition, watch US big box retailers this week to see what they think about the upcoming holiday season!

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