While there remain a few weeks before the next FOMC meeting, whether the Fed would announce QE3 still catches heated speculations. Softer than expected headline CPI, together with contraction in Empire State manufacturing index, in the US inevitably raised hopes of further easing from the central bank. Wall Street traded narrowly for most of the day before closing largely flat with the DJIA losing -0.06% and the S&P 500 gaining +0.11% respectively. In the commodity sector, crude oil price soared to 3 -months highs with the WTI crude contract gaining +0.96% and the Brent crude rising above 116, up +1.95%. Gold also recovered and settled above 1600 again amid QE speculations.
US data released on Wednesday missed expectations. Headline CPI eased to +1.4% y/y in July from +1.7% a month ago, driven by declining food and energy prices. Core inflation also moderated in July, easing to +2.1% from +2.2% in June. Further moderation in inflation has given room for additional easing. Meanwhile, the Empire State manufacturing index surprisingly slipped -5.85 in August from 7.39 in the previous month. Investors probably viewed contraction in manufacturing activities in New York another trigger for QE3.
In Asian session today, shares were boosted by the Chinese government's indication in monetary easing. Xinhua News reported that Premier Wen Jiabao said during a tour to the Eastern province of Zhejiang that there's room for further easing as inflation softened. While warning that downside risks to the economy remained "relatively large", Wen affirmed the country has the "conditions and capabilities, and will be sure to fulfill this year's economic and social development targets".
A series of economic data will be released today. In the UK, retail sales probably eased to +1.75 y/y in July from +2.2% a month ago. The Eurozone's CPI might have stayed at +2.4% on annual basis in July while contracting -0.6% from a month ago. In the US, initial jobless claims probably added +4K to 365K in the week ended August 11 while the Philly Fed survey improved to -4 in August from -12.9 in July.