Risk appetite waned ahead of the big Fed Day while fiscal uncertainty was seen rising from a potential government shutdown. Yields tilted higher despite most expecting the Fed to hold, as the chances of another 25bps by the end of the year remain relatively high at 40%. Gold and crude ended their short-term runs.
Chart: EURUSD
Housing starts in the US came out worse than expected, with the fast component falling to 11.3% when a 2% expansion was expected. That was the 5th month this year alone that it sunk. With the 2-year yield spiking to its highest since 2006 Tuesday and the 10-year rise sending mortgage rates to their highest since 2007, at 4.366%, the housing market may remain under pressure. The dollar’s rise saw gold ending its 3-day streak shy of $1940 an ounce, opening the door towards $1923.
Annual inflation in Europe received a downward revision from 5.3% to 5.2%, the lowest reading since 2022, but the cost of services remained elevated, and CPI was far from the 2% target. Core inflation slowed down from 5.5% to 5.3%. However, the fast reading rotated back into an expansion of 0.3% from -0.1%, killing the disinflation narrative. EUR/USD bulls failed to get through $1.07, exposing the support at $1.0643 again.
Canada’s inflation soared to 4% on an annual basis from 3.3%, while economists expected an expansion of 3.8%. Core inflation also rose ten basis points annually, with the fast reading showing an increase of 0.4% from an expected 0.3%. The hotter data sent USD/CAD to a low of 1.3380 Tuesday, but price action recoiled by the session’s end to 1.3448. Moving higher can bring 1.3485 back into focus.
Crude stocks showed a significant drawdown of 5.25 million barrels, the 5th drawdown over the past six weeks, far from analysts’ estimates of a 2.667M build. Still, WTI oil fell after hitting a 10-month high of $92.65 a barrel Tuesday, losing 1.59% by the close after retesting the $90 handle, as investors secured some profits ahead of FOMC. Pressured early Wednesday, WTI could revisit $88.80 and $87.80/bbl unless the bulls regain momentum.