• Dollar struggles as weak US data scale back rate hike expectations US retail sales for September disappointed, while PPI fell at an accelerating pace, raising doubts about whether the Fed will raise interest rates this year. Retail sales edged up only 0.1% mom, falling short of expectations for a 0.2% mom rise. On top of that, August’s figure was revised down to 0.0% mom from +0.2% mom previously. As for the producer prices, they recorded their biggest decline in eight months. The weak reports on Wednesday were the latest suggestion that the US economy is losing momentum in the face of slowing global growth. Investors will focus today on the US headline and core CPI rates for September. These figures are going to get more attention than usual from investors, as it could help them to re-price rate hike expectations.
• Also on Wednesday, the Fed's Beige Book showed the US economy grew at a modest pace, scaling further back expectations of Fed hike this year. Two weeks before the October FOMC meeting, the Beige Book indicated some slowdown in the economy, while the strong dollar, restrained activity in the manufacturing, tourism and energy sectors.
• Fading expectations of a rate hike pushed the dollar to around a seven-week lows against a basket of currencies. The big question that we face now, is whether the dollar weakness is just a corrective phase or a trend reversal. Will the weakness in dollar persist or will it resume its bullish trend? I believe that this highly depend on Fed officials’ commentary in the following days. Already several officials downplayed the weak employment report recently, and maintained their stance that they are still on track to hike this year. As a result, if Fed officials reiterate that they still could raise rates this year despite the recent disappointing data, USD is likely to regain its lost glamour. On the other hand, any remarks that suggest a change in their stance, could put USD under renewed selling pressure across the board, in my view.
• Today’s highlights: During the European day, Sweden’s official unemployment rate for September is coming out. The PES unemployment rate declined on Monday, which increases the likelihood that the official rate could decline as well.
• In the US, the highlight will be the headline and core CPI rates for September. The headline CPI is expected to have turned negative, while the core CPI is expected to have remained unchanged. Having in mind that on Thursday, the Fed minutes showed officials worried on low inflation, a dip into deflation will confirm their concerns and increase the possibilities that the committee will not raise interest rates this year. The Empire State manufacturing index is expected to show that business conditions for NY manufacturers have deteriorated in October. Initial jobless claims for the week ended Oct. 10 and the Philadelphia Fed Business activity index for October are also coming out.
• We have several speakers on Thursday’s agenda:, ECB Governing Council member Ewald Nowotny, Norges Bank Governor Oeystein Olsen, St. Louis President James Bullard, New York Fed President William Dudley and Cleveland Fed President Loretta Mester speak.