Market Overview - U.S. stocks reached record highs, with the S&P 500 rising 0.8%, the Dow Jones Industrial Average increasing by 472 points (1%), and the Nasdaq composite climbing 1.1% [1] - The positive inflation data suggests potential relief for lower- and middle-income households and may enable the Federal Reserve to continue cutting interest rates to support the slowing job market [2][3] Federal Reserve Actions - The Federal Reserve recently cut its main interest rate for the first time this year, but has been cautious about further cuts due to concerns that lower rates could exacerbate inflation [3] - Following the inflation report, traders are increasingly confident that the Fed will cut rates in its next two meetings, including one scheduled for next week [3] Economic Concerns - There have been concerns regarding the labor market and inflation, with Fed officials currently prioritizing labor market conditions over inflation [4] - Recent stock market fluctuations have raised questions about valuations, as the S&P 500 has surged 35% since April, outpacing corporate profit growth [4] Company Performance - Ford Motor Company saw a significant increase of 12.2% in its stock price after exceeding analysts' profit expectations for the latest quarter, indicating strong business performance [6] - Intel's stock rose by 0.3% following a quarterly profit that surpassed analysts' expectations, with the CEO attributing this success to the booming demand for artificial intelligence [7]

Group 1: Dollar Index and Economic Indicators - The dollar index (DXY00) rose by +0.04% as it anticipates the US CPI report for September, supported by a rise in existing US home sales to a 7-month high [1] - Existing home sales in the US increased by +1.5% month-over-month to 4.06 million, aligning with market expectations [3] - The markets are pricing in a 99% chance of a -25 basis point rate cut at the next FOMC meeting on October 28-29 [3] Group 2: Euro and Economic Conditions - The EUR/USD rose by +0.06% as the euro recovered from overnight losses, supported by an unexpected rise in the Eurozone October consumer confidence indicator to an 8-month high [4] - The Eurozone October consumer confidence indicator increased by +0.7 to -14.2, surpassing expectations of a decline to -15.0 [5] - Swaps are pricing in a 1% chance of a -25 basis point rate cut by the ECB at the October 30 policy meeting [5] Group 3: Yen and Japanese Monetary Policy - The USD/JPY rose by +0.37% as the yen fell to a 1.5-week low due to concerns that new Japanese Prime Minister Takaichi may advocate a less hawkish monetary policy [6] - Higher T-note yields negatively impacted the yen, contributing to its decline [6]

October 22, 2025 08:59 PM GMT Federal Reserve Monitor | North America Ahead of the October FOMC: Our Monetary Forecasts We participate in the NY Fed's Survey of Market Expectations, which collects expectations about monetary policy and the economy before each FOMC meeting. This note provides a snapshot of our responses to the survey. | M | | | | --- | --- | --- | | | | Idea | | October 22, 2025 08:59 PM GMT | | | | Federal Reserve Monitor North America | Morgan Stanley & Co. LLC | | | | Michael T Gapen | | ...

Market Overview - US stocks experienced a decline, with the Dow Jones Industrial Average falling 0.7% (over 300 points), the S&P 500 down approximately 0.5%, and the Nasdaq Composite leading losses at around 1% [1] - The market is reassessing following a strong start to third quarter earnings, particularly with Tesla's upcoming quarterly report [2] Company Performance - Netflix's stock dropped about 10% after missing earnings expectations, influenced by a tax dispute in Brazil [3] - Mattel's shares also fell due to disappointing North American sales [3] Economic and Trade Developments - Ongoing trade tensions with China are causing market uncertainty, with President Trump potentially considering significant restrictions on US software exports to China [4] - The US and India are reportedly nearing an agreement to reduce tariffs on Indian exports from 50% to as low as 15% [4] Economic Data - The US federal shutdown has delayed official economic releases, with the next major data point being the September Consumer Price Index report [5] - This inflation report is expected to influence expectations for the Federal Reserve's upcoming meeting, where a 25 basis point interest rate cut is widely anticipated [5]

Group 1: Market Performance - US stocks experienced a decline on Wednesday following a record-setting session for the Dow, with the Dow Jones Industrial Average falling 0.3%, the S&P 500 losing 0.4%, and the Nasdaq Composite down approximately 0.8% [1] - Wall Street is looking to earnings reports to boost market sentiment after positive blue-chip results on Tuesday helped the Dow reach an all-time closing high [2] Group 2: Company Earnings - Tesla's quarterly earnings report is anticipated, marking the beginning of updates from the "Magnificent Seven" companies, which could impact the recent stock rally [2] - Netflix's stock dropped over 9% after the company reported earnings that missed expectations, partly due to a tax dispute in Brazil [3] - Mattel's shares also declined as the toymaker's North American sales fell short of expectations [3] Group 3: Commodity and Economic Outlook - Gold prices continued to decline after experiencing the largest one-day drop in over a decade [4] - The US federal shutdown has delayed official economic releases, with the September Consumer Price Index report expected to be a significant upcoming data point for the markets [5] - The inflation report will influence expectations ahead of the Federal Reserve's meeting, where a 25 basis point interest rate cut is widely anticipated [5]

Core Viewpoint - Inflation in the U.K. remained steady at 3.8% year-on-year as of September, contrary to expectations of an increase, which may support the case for an interest rate cut by the Bank of England next month [1][2][4] Group 1: Inflation Data - The Office for National Statistics reported that consumer prices rose by 3.8% annually, unchanged from the previous two months [1] - Most economists had anticipated an increase to 4%, which would have been double the Bank of England's target [2] Group 2: Economic Outlook - Economists believe that the flat inflation reading suggests that inflation may have peaked and could decline towards the Bank's target in the coming months [2] - Martin Sartorius, a principal economist, indicated that price pressures are expected to ease slowly, with a more significant reduction in inflation likely not occurring until the first half of next year [3] Group 3: Central Bank Implications - The unexpected inflation data raises the possibility of the Bank of England cutting interest rates at its next policy meeting on November 6 [4] - The central bank had previously maintained its main interest rate at 4% due to inflation concerns [4] Group 4: Government Budget Considerations - The inflation figure is significant for Treasury chief Rachel Reeves as she prepares for a crucial budget statement on November 26, where tax increases are anticipated [5] - September's inflation rate will influence welfare benefits for the upcoming year, resulting in lower-than-expected funding costs [5]

Group 1 - The home building industry is facing weak demand and margin pressure, leading to a challenging market environment [1][2] - Despite a significant demand for homes, companies are reluctant to lower prices, which is necessary to adjust to current market conditions [2][3] - There is a belief that the Federal Reserve should cut interest rates to help alleviate the financial strain on the industry [1]

Core Viewpoint - The Federal Reserve is expected to lower its key interest rate by 25 basis points next week and again in December, reflecting a shift in expectations among economists regarding monetary policy adjustments [1][2]. Interest Rate Predictions - A Reuters poll indicates that 115 out of 117 economists predict a rate cut to 3.75%-4.00% on October 29, with two economists forecasting a 25 basis points cut in October and a 50 basis points cut in December [2][3]. - The likelihood of another cut in December is estimated at 71%, showing a consensus among economists [3]. Economic Conditions - The Federal Reserve is balancing the risks of elevated inflation and a weakening labor market, with a recent rate cut being the first since December [2][4]. - A government shutdown has delayed key employment and inflation data, complicating the economic outlook [4]. Labor Market Insights - Current private-sector data suggest modest layoffs and hiring, indicating stability in the job market without significant changes [5]. - Economists are divided on whether the job slowdown is due to labor demand or supply issues, which affects monetary policy responses [5]. Inflation and Unemployment Forecasts - The unemployment rate is expected to average around 4.3% through 2027, remaining largely unchanged [6]. - Inflation is projected to average above the Fed's 2% target through 2027, with consumer inflation anticipated to rise to 3.1% from 2.9% in August [6]. Future Rate Speculations - Economists are divided on future interest rates, with predictions ranging from 2.25%-2.50% to 3.75%-4.00% by the end of next year, influenced by speculation on the next Fed chair after Powell's term ends in May [7].

Market Trends & Interest Rate Expectations - South Korea's shorter-maturity government bonds are expected to get a boost [1] - Expectations for an interest-rate cut next month are spurred by measures to cool the housing market [1]

Interest Rate Expectations - Markets anticipate a 96.8% probability of a 25 basis points (bps) rate cut at the Federal Reserve meeting on October 29, 2025 [1]