The US September inflation report released on Wednesday wasn’t particularly noteworthy, but the market behaved strangely on its release:

The USD index rapidly rose from 93.20 to 93.50 points and has been holding onto gains on Wednesday. Looking into details of the report, one cannot say there was something that was a shock to market expectations: core inflation remained unchanged at 1.7% YoY with the forecast of 1.8%, month-on-month gain in the price level was 0.2% (with a forecast 0.2%). Although in the medium-term, a growing slack in the price growth can be seen:

Consumption impulse appears to be fading as stimulus-driven spending fizzles out. Recall that we were warned by several Fed representatives that net effect of the pandemic shock on prices is disinflationary which is manifesting as stimulus boost gradually fades.

Today, the USD price action is calm, while US index futures are trying pull lower. Apart from pre-election uncertainty, it is difficult to see any other factor of support for USD. The area between 93.50 and 94.00 levels should be examined for selling opportunities.

An interesting trend of inflation is observed in the category of used cars and trucks. Looking at the inflation component there is a strong feeling that a good part of stimulus checks flowed to the used cars market:

Inflation in July, August and September amounted to 2.3, 5.4, 6.7% YoY respectively. Car inventories are declining, which may benefit carmaker stocks, which might have already started to price in increased sales. I wonder, how much the increase in sales is due to the trend to avoid public transport due to the threat of getting infected? What do you think about it?

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