Markets await core PCE volatility after EUR and JPY fireworks

• Asian fireworks continue, although Nikkei gains likely to reverse on Monday
• Inflation data sparks EUR declines
• US data in view, as markets celebrate easing recession fears

European markets are on the rise in a session that will struggle to replicate the kind of fireworks that saw yet another bout of gains throughout Asian markets. The week has been dominated by talk of Chinese stimulus, as the PBoC and Chinese government finally appear to have stepped up with a raft of measures aimed at resuscitating a stuttering economy. Whether this will be enough to fix the huge structural issues and a lack of demand for the hugely oversupplied housing market remains to be seen. Nonetheless, it was the turn of the Japanese to bring the volatility, with the 2.3% surge for the Nikkei expected to reverse on Monday given the sharp spike in the Yen seen after Shigeru Ishiba won the LDP leadership election to become the next PM. This development puts the former defense minister in charge, marking a likely continuation of the anti-Abenomics push that will likely see higher rates and trimmed JGB purchases.

A collapse in both French and Spanish inflation has helped spark a sharp move lower for the euro, with the single currency coming under pressure on the increased confidence that the ECB will have to front-load their rate cuts. An incredible -1.2% decline for French inflation in the month of September alone marked the biggest monthly drop since at least 1990, taking the annual figure down to 1.2% (three-year low). With the wider eurozone inflation metric due next week, the euro looks to be under pressure as the ECB are pushed towards a speedy normalization for interest rates.

The focus on US economic data continues today, with the core PCE price index inflation metric set to bring a fresh insight into the trajectory of prices as we weigh up the likeliness of another 50bp cut in November. Improved GDP and jobless claims data yesterday has helped allay some of the fears that we could see a potential hard landing in the US, shaping up a heady mix of stable economics and stimulative monetary policy. With the Dow and S&P 500 hitting record highs this week, investors will hope to see the core PCE metric decline to further strengthen the case for a 50bp rate cut from the Fed.