Calm has returned to most markets this morning after a rocky week where the Nasdaq Composite Index entered a technical bear market, US Treasury yields crossed 5% for the first time in 16 years, and the USD reached 11-month highs when measured against a basket of currencies.

The main highlights this morning:

• PCE deflator figures, the Fed’s preferred measure of inflation, were mostly in line with expectations. The month-over-month reading for September was +0.4%, 0.1% higher than expected and unchanged from the prior reading. The YoY measure of +3.4% matched median surveys and was also unchanged from the prior month when accounting for a slight downward revision. An interesting point was that personal income came in slightly below expectations at +0.3% yet personal spending increased 0.7%, a 0.3% jump from the previous data point, a sign that the average consumer is living beyond their means.
• Earnings-wise, Amazon and Intel both beat expectations, sending their shares higher and providing some support for battered equity indices.
• Treasury President Janet Yellen rebuffed views that increased bond issuance by her department is causing yields to spike. In an interview with Bloomberg yesterday, she said that the run up is a “global phenomenon in advanced countries” yet also due to the need to keep rates “higher for longer,” borrowing Fed phrasing.

The market has now shifted to next Wednesday’s Fed decision and press conference as the closest catalyst. A pause is now priced in at 100% by fed funds futures markets and, as always, the tone and forward guidance of the statement will be the major items to look out for. Shortly thereafter on Friday, US non-farm payrolls for October will be released.

EUR/USD is slightly higher this morning after a relatively choppy overnight session. Yesterday’s ECB decision to pause hikes for the first time in over a year was followed by a speech by President Lagarde this morning urging European Union leaders to come to an agreement on standard fiscal rules for member nations by the end of the year. In addition, ECB governing council member Muller also stated that the Euro area is in stagnation, not deep economic crisis.

USD/CAD is close-to-unchanged on the day as the Loonie underperforms its peers, even as oil prices show signs of recovery. The pair remains within earshot of its year-to-date high as the market awaits next Tuesday’s GDP print and Friday’s employment reports.

GBP/USD is slightly higher on the day in line with peers as the market awaits next Thursday’s Bank of England rate decision. The BoE has been between a rock and a hard place somewhat given above average inflation and sputtering economic growth and will certainly have a “tightrope to walk” in their statement release.

USD/MXN is one of the better performers on the day as calm returns to markets. It is still about 2% above its 200-day moving average although next Tuesday’s GDP report may sway it significantly to/from that level.

USD/BRL is lower on the day as the market awaits next week’s Selic rate decision on Wednesday, where a 50 basis point cut is expected. Helping this move today are higher oil and iron ore prices.