Source: Euronews

In the latest CPI inflation print (released on 10 October), US CPI inflation was coming in a tad hotter than expectations, UOB Group’s economist Alvin Liew notes.

Headline and core CPI above expectations in September

“US CPI inflation was a tad hotter than expectations as headline CPI rose by 0.2% m/m, 2.4% y/y in Sep (August: 0.1% m/m, 2.5% y/y). Despite the miss, it was still the slowest since Feb 2021. But core CPI continued to accelerate as it rose by 0.3% m/m (same pace as August) while compared to 12 months ago, it picked up pace to 3.3% y/y (August: 3.2%). Shelter and food costs were key factors driving headline CPI, offsetting the decline in energy costs, while core services inflation accelerated on a plethora of items, including pricier non-housing services.”

“We still expect US inflation to ease but admittedly near-term challenges are clearly present. We keep our headline CPI forecast to average lower at 2.9% in 2024 (compared to the 4.1% recorded in 2023). While core inflation may also ease, it is now likely to average 3.4% in 2024 (from previous forecast of 3.3%). It is still a significant moderation from the 4.8% average in 2023 but remains well above the Fed’s 2% objective. Our 2025 headline inflation and core forecast are both now at 2.0%.”

“September’s jumbo 50 bps of rate cut increasingly looked to be oneoff and Fed likely to continue to ease but at a gradual pace. The not-so-cool September core CPI certainly dialed back those more aggressive expectations of Fed rate cuts but it probably was not hot enough to grind the Fed to a pause. If anything, it will imply gradualism for the Fed in its pace of easing. We still expect the Fed to continue the rate cut cycle in the remaining meetings this year, with 50-bps cuts for the remainder of 2024 (i.e. two 25-bps cuts, one each in November 24 and December 24 FOMC).”

Source: FXSTREET

EUR/GBP continues to lose its ground for the third successive day, trading around 0.8350 during the European session on Tuesday. The EUR/GBP cross remains subdued following the release of mixed employment data from the United Kingdom (UK).

The UK ILO Unemployment Rate fell to 4.0% in the three months leading up to August, down from 4.1% in July and below the market forecast of 4.1%. Employment Change for August saw a notable increase of 373,000, up from 265,000 in July. Meanwhile, Average Earnings excluding Bonuses grew by 4.9% year-on-year for the same period, meeting expectations but slightly below the 5.1% growth registered in July.

Traders will likely focus on a series of key economic data from the United Kingdom, set to be released on Wednesday, including the Consumer Price Index (CPI), the Producer Price Index (PPI) and the Retail Price Index. These data releases could influence the Bank of England's (BoE) policy outlook. However, BoE officials have indicated that they may resume rate cuts at the upcoming meeting in November.

In the Eurozone, France's Consumer Price Index (CPI) fell by 1.2% month-over-month in September, following a 0.5% increase in August. This marks the sharpest monthly decline in prices since the series began in 1990. Year-on-year, inflation rose by 1.1%, down from 1.8% in August, primarily driven by significant drops in energy prices and a slowdown in service costs.

In Spain, annual inflation stood at 1.5% in September, the lowest level since March 2021, down from 2.3% in the previous month. Monthly inflation decreased by 0.6% in September, as expected, while annual core inflation also fell by 2.4%.

According to the October 2024 Bank Lending Survey (BLS), euro area banks noted the first negative impact of the European Central Bank's (ECB) interest rate decisions on their net interest margins since the end of 2022. Meanwhile, the effects on volumes of interest-bearing assets and liabilities continued to be negative.

Source: FXSTREET

The European Union unveiled its negotiating stance for the COP29 climate talks next month, while leaving unanswered the key question of how it will boost funding for poorer countries in their fight against global warming.

The United Nations’ summit in Baku, Azerbaijan, has one clear aim: turning billions of dollars in climate finance into trillions while helping countries embark on the climate transition and deal with increasingly extreme weather. Yet many EU countries, grappling with increasingly severe budget deficits, are trying to pressure other countries like China to share the burden.

“We are leading the game,” said Agnes Pannier-Runacher, France’s climate minister, on Europe’s efforts on the financial component. “We cannot be alone around the table trying to fulfil the expectations of most countries across the world.”

EU countries agreed that expanding the donor base of countries is a “prerequisite” for an ambitious new post-2025 climate finance goal, according to conclusions from the bloc’s council. Such a stance reflects “the evolution of respective economic capabilities and increasing shares of global GHG emissions since the early 1990s,” it said.

The tight financial situation sets the stage for tough talks over money next month. In Europe, budgets are being squeezed. In the US, there’s uncertainty over the outcome of the Nov 5 presidential election, which takes place just a few days before COP29. Developed countries hit an agreed US$100 billion (RM431 billion) per year goal two years late, and now they will be expected to cough up even more.

“Ministers agreed to the bare minimum for a constructive EU position on climate finance for COP29,” said Linda Kalcher, executive director at Strategic Perspectives, a European think tank. “Countries in the global south will expect more concreteness on the multiple layers and actual figures for the finance goal from the EU; otherwise, it will not be able to play its traditional role as a bridge-builder for success.”

France is among nations that won’t have much money to spare for climate finance beyond its borders. Its credit rating outlook was cut to negative by Fitch Ratings last week, a day after the government presented its 2025 budget. The agency said it expects a “steep rise” in government debt over the next few years.

Germany, the EU’s largest economy, saw its contribution to green projects overseas fall last year to €5.7 billion (RM26.81), less than the €6 billion Chancellor Olaf Scholz promised the country would pay annually from 2025. It stems from a 12% cut in the development ministry’s budget amid broader economic struggles.

The EU will make its financial contributions for last year available before the start of COP29, which runs from Nov 11-22. During talks on Monday, environment ministers largely focused on the role of nuclear energy and what emphasis to place on the bloc’s plan to cut emissions by 90% by 2040, which is set to be formally put forward next year.

“It’s probably the most difficult negotiation since Paris,” Ireland’s environment minister, Eamon Ryan, said of the COP29 talks, comparing them to the landmark 2015 climate accord. “We have to land a substantial agreement and it’s not certain.”

Source: Theedgemarkets